My four-partner partnership has owned a mixed residential/commercial building for 20 years, with each partner exclusively occupying one residential floor. We want to convert it into a two-unit condominium, with the residential floors becoming a cooperative corporation that issues each partner shares for the same floor they already live in. Does any of this trigger New York's Real Property Transfer Gains Tax?

Plain-English summary

This tax no longer exists. New York's Real Property Transfer Gains Tax (former Article 31-B of the Tax Law) was a 10% tax on the GAIN from transferring New York real property where consideration was $1 million or more. It was repealed for any transfer occurring on or after June 15, 1996. This 1994 opinion is preserved here for historical and research value, not as current law.

115 Spring Street Company, a four-partner (25% each) partnership, had owned a five-story SoHo building for about 20 years. Under the 1974 Partnership Agreement, each partner had exclusive use of one specific residential floor (second through fifth) and no rights to the others' floors, while the first floor and cellar were rented out commercially. The partnership planned to convert the building into a two-unit condominium: a "Professional Unit" (cellar plus first floor, kept by the partnership) and a "Residential Unit" (the four residential floors, transferred to a newly formed cooperative housing corporation). The co-op would then issue 25% of its stock, plus a proprietary lease, to each partner -- specifically for the floor that partner had always occupied.

New York's now-repealed gains tax has a special rule for cooperative and condominium conversions: the transfer of the underlying real property to the cooperative or condominium structure ISN'T the taxable event; the tax (if any) attaches instead to the later TRANSFER OF SHARES under the plan (former § 1442, applied through 20 NYCRR § 590.33). The Department's regulations further confirmed that when a realty transferor (like a partnership) distributes cooperative shares to its OWNERS in proportion to their existing ownership interests, that distribution generally doesn't require tax either -- UNLESS the owners take the shares as "tenant stockholders" (i.e., actually move into and occupy a specific unit under a proprietary lease), in which case it can be taxable.

Here, each partner WAS taking shares as a tenant stockholder (getting a proprietary lease for a specific unit to live in) -- which would normally flag the transfer as potentially taxable. But the Department looked past that formal category to the substance: each partner's beneficial ownership of THEIR OWN specific residential floor had never changed. Before the conversion, each partner already had the exclusive right (under the 1974 partnership agreement) to occupy that same floor and no other; after the conversion, they'd have shares and a proprietary lease for that identical floor. Since there was no actual change in who beneficially owned what, the Department concluded the whole sequence -- the initial transfer to the condominium/cooperative form, and the subsequent issuance of shares and leases to each partner for their pre-existing unit -- was a "mere change of identity or form of ownership" under former § 1443.5, and none of it triggered the gains tax.

What this means for you

Partnerships or co-owned entities converting to condominium or cooperative form for existing occupants

Under this now-repealed tax, converting an entity-owned building into a condominium/co-op and distributing shares/leases to the SAME people who already had exclusive occupancy rights to those specific units wasn't automatically pushed into the "taxable tenant stockholder" category just because the paperwork looked like a typical co-op sale. What mattered was whether beneficial ownership of each unit genuinely changed -- and here it didn't.

Sponsors and attorneys structuring co-op/condo conversions of multi-partner buildings

This ruling shows the Department willing to look past the formal "tenant stockholder" trigger in its own regulations when the underlying economics show continuous, unchanged occupancy rights. Documenting that continuity (here, via a 20-year-old partnership agreement specifically assigning each unit to a specific partner) was central to the favorable result.

Accountants tracking pre-1996 partnership-to-co-op conversions

If you're reconstructing the gains-tax history of an old conversion where partners simply formalized pre-existing occupancy arrangements into condo/co-op form, this opinion and the underlying share-transfer timing rule (former § 1442) are the key authorities.

Common questions

Q: Does the cooperative/condominium conversion timing rule still matter today?
A: Not under this specific tax -- it was repealed for transfers on or after June 15, 1996. Current NY taxes on real property (like the Real Estate Transfer Tax) have their own separate rules for cooperative and condominium transactions.

Q: Why would taking shares as a "tenant stockholder" normally be taxable?
A: Because it usually signals a real transfer of value -- someone is getting shares specifically tied to occupying and living in a unit, as opposed to simply holding an investment interest in the co-op corporation pro rata to their prior ownership. The Department's regulations treat that occupancy-linked transfer as the kind of event the gains tax is meant to capture.

Q: What made this situation different from an ordinary "tenant stockholder" case?
A: Each partner was already the exclusive occupant of that same specific unit BEFORE the conversion, under a decades-old partnership agreement -- so nothing about who had the right to live where actually changed. It wasn't a case of shares being newly allocated to create occupancy rights that didn't already exist.

Q: Can another partnership converting to condo/co-op form rely on this exact ruling?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioner and facts presented, and this outcome depended on the specific, long-standing, unit-by-unit occupancy arrangement documented in the 1974 Partnership Agreement.

Citations and references

Statutes and regulations:

• former Tax Law § 1440.7 (definition of "transfer of real property"; cooperative-plan transfers include all transfers of stock in a cooperative corporation owning real property)
• former Tax Law § 1441 (imposition of the gains tax at 10% of gain from real property transfers)
• former Tax Law § 1442 (special cooperative/condominium conversion rule: the taxable transfer date is each unit's share transfer date, with an apportionment of original purchase price and total consideration for each unit)
• former Tax Law § 1443.5 (exemption for a transfer that is a mere change of identity or form of ownership or organization, with no change in beneficial interest)
• former 20 NYCRR § 590.33 (on a cooperative conversion, tax is not payable on the initial transfer of the property to the cooperative corporation; it attaches to the later transfer of shares under the plan)
• former 20 NYCRR § 590.35(e), (f) (transfers of cooperative shares by the corporation, or by the realty transferor, to the owners in proportion to their existing ownership interests generally don't require tax, unless the owners take the shares as tenant stockholders; the Department applied the same reasoning to condominium unit transfers)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a94_3r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (3)R
Real Property
Transfer Gains Tax
March 30, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M931206B

On December 6, 1993, a Petition for Advisory Opinion was received from 115 Spring Street
Company, 115 Spring Street, New York, New York 10012.
The issue raised by Petitioner, 115 Spring Street Company, is whether the transfer of real
property as herein described constitutes a "mere change of identity or form of ownership" and is
therefore exempt from the Real Property Transfer Gains Tax (hereinafter the "gains tax").
Petitioner is a partnership that owns the land and five-story building known as 115 Spring
Street, New York, New York (the "property"). Petitioner has owned the Property for approximately
20 years. The second, third, fourth, and fifth floors of the Property are each single residential units.
The first floor and cellar are rented out for commercial use.
Petitioner has four partners, each of whom holds a twenty-five (25) percent partnership
interest. For purposes of the Advisory Opinion petition, a husband and wife are considered as a
single partner. The four partners occupy the four residential units located on the second through the
fifth floors of the Property. The Partnership Agreement, dated as of February 1, 1974, specifies
which residential unit is to be occupied by each of the partners. Each of the partners has the
exclusive use of his unit and no rights to use the other partners' units. All of the partners have
occupied the Property in accordance with the Partnership Agreement since 1974.
It is proposed that the Property will be converted into a two-unit condominium. One unit (the
"Professional Unit") will consist of the cellar and the first floor, apart from the portions of these
floors that will be part of the common elements. The second unit (the "Residential Unit") will
consist of the four residential units, which are located on the second through the fifth floors of the
Property. The Professional Unit will be retained by Petitioner. The Residential Unit will be
transferred to a corporation intended to qualify as a cooperative housing corporation under the
Internal Revenue Code. Twenty-five percent of the stock of the corporation will be allocated to each
of the four residential units and each partner will receive the shares allocated to the unit currently
occupied by him, together with a proprietary lease for his unit.
The gains tax is a 10% tax on the transfer of an interest in real property where the property
is located in New York State and where the consideration received for the transfer is $1 million
dollars or more.
Section 1440.7 of the Tax Law provides, in pertinent part, as follows:

7. "Transfer of real property" means the transfer or transfers of any interest
   in real property by any method, including but not limited to sale, exchange,
   assignment, surrender, mortgage foreclosure, transfer in lieu of foreclosure, option,
   trust indenture, taking by eminent domain, conveyance upon liquidation or by a

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Real Property
Transfer Gains Tax
March 30, 1994
receiver, or transfer or acquisition of a controlling interest in any entity with an
interest in real property.
... Transfer of real property shall also include partial or successive transfers,
unless the transferor or transferors furnish a sworn statement that such transfers are
not pursuant to an agreement or plan to effectuate by partial or successive transfers
a transfer which would otherwise be included in the coverage of this article, and the
transfer of real property by tenants in common, joint tenants or tenants by the
entirety, provided that the subdividing of real property and the sale of such
subdivided parcels improved with residences to transferees for use as their
residences, other than transfers pursuant to a cooperative or condominium plan, shall
not be deemed a single transfer of real property. For purposes of this article, transfers
pursuant to a cooperative plan shall include all transfers of stock in a cooperative
corporation which owns real property. (emphasis added)
Section 1443 of the Tax Law provides, in part, as follows:
Sec. 1443. Exemptions.-- A total or partial exemption shall be allowed in the
following cases:
*

*

*

5. If a transfer of real property, however effected, consists of a mere change
   of identity or form of ownership or organization, where there is no change in
   beneficial interest.
   Section 590.33 of the Gains Tax Regulations provides:
   Question: On a conversion to cooperative ownership, is a tax payable on the
   transfer of the property to the cooperative corporation, as well as on the issuance of
   the stock and proprietary leases by the cooperative corporation to the purchasers?
   Answer: No. Article 31-B of the Tax Law has special provision triggering
   payment of the tax on cooperative conversions and for calculating the tax due on
   such transactions. The special provisions are set forth in section 1442 of the Tax
   Law and provide that, "In the case of a transfer pursuant to a cooperative or
   condominium plan, the date of transfer shall be deemed to be the date on which each
   cooperative or condominium unit is transferred. For purposes of calculating the
   amount of tax due in each such transfer, an apportionment of the original purchase
   price of the real property and total consideration anticipated under such plan shall be
   made for each such cooperative or condominium unit." Basically, the statute provides
   that the transfer of real property to a cooperative corporation is not the event which
   requires payment of tax. Rather, it is the transfers of share pursuant to the plan which
   are the events requiring payment of tax.

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Real Property
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March 30, 1994
Section 590.35 of the Gains Tax Regulations provides, in part, as follows:
590.35 Transfers of shares which require payment of tax. [Tax Law, §1440(7)]
Question: Which transfers of cooperative shares by the person who transfers
an interest in real property to the cooperative housing corporation (the realty
transferor), or by the owners of the realty transferor, or by the cooperative corporation
itself, require payment of tax?
(e) Transfers by the cooperative corporation to the owners of the realty
transferor?
Answer: No, the transfer of shares by the cooperative corporation to the
owners of the realty transferor, in proportion to their respective ownership interests
in the entity, will not require payment of tax. This result applies whether the owners
hold the shares jointly or individually, provided that the owners, or family members
of the owners, do not take the shares as tenant stockholders.
(f) Transfers by the realty transferor to its owners?
Answer: No, if the realty transferor is a partnership, corporation, or other
entity and transfers the shares to its owners, for investment or resale, in proportion
to their respective ownership interests in the entity, these transfers will not require
payment of tax. This result applies whether the owners hold the shares jointly or
individually, provided that the owners do not take the shares as tenant stockholders.
Following transfers to the owners of the realty transferor which do not require
payment of tax, the owners hold the shares in the place of the realty transferor and
their total original purchase price is equal to that of the realty transferor's
immediately before the transfer ... (emphasis added)
Although the above-cited regulations make references to only transfer of cooperative shares
in a cooperative corporation, it should be noted that it is the Department's position that such
provisions should also apply to the transfer of condominium units in the same manner.
Pursuant to Section 1440.7 of the Tax Law and the rationale set forth in Sections 590.33 and
590.35(e) and (f) of the Gains Tax Regulations, the conversion of the Property by Petitioner to a two­
unit condominium is not a transfer which requires the payment of the gains tax since the Partners
will not take ownership of the condominium units as unit purchasers, but will retain ownership in
the Property in proportion to their respective ownership interest in the Petitioner prior to the
conversion. Therefore, the conversion of the Property to a two-unit condominium is not subject to
gains tax at this time.
Moreover, pursuant to Section 590.33 of the Gains Tax Regulations the transfer of the
Residential Unit to a cooperative housing corporation in exchange for the stock allocated to the four
residential units is not a transfer of real property which requires the payment of the gains tax, but

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March 30, 1994
rather it is the transfer of shares pursuant to the plan which are the events requiring payment of tax.
However, pursuant to Section 590.B5(e) and (f) of the Gains Tax Regulations where an owner
receives the shares allocated to the unit occupied by him, together with a proprietary lease for his
unit, as tenant stockholders such transfer is a transfer which requires the payment of the gains tax.
Notwithstanding, in the instant case each Partner pursuant to the Partnership Agreement held
a beneficial interest solely in the unit he occupied prior to the conversion of the Property to its
condominium and cooperative form of ownership, and had no interest in the other Partners' units.
Accordingly, it is recognized that the beneficial ownership of each Residential Unit has continuously
vested with each individual Partner without regard to ownership of the Property being held by
Petitioner. Thus, the transfer of the shares allocated to the Residential Units from the cooperative
housing corporation to each Partner whereby each Partner will receive shares allocated to the unit
he occupied prior to the conversion and a proprietary lease for his unit will constitute a mere change
of identity or form of ownership or organization since there is no change in the beneficial ownership
of each residential unit. Therefore, pursuant to Section 1443.5 of the Tax Law, the transfer of the
shares allocated to the Residential Units by the cooperative housing corporation to the Partners as
tenant stockholders is not subject to the gains tax.

DATED: March 30, 1994

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.