A flip tax, also known as a transfer fee, is a charge imposed by a cooperative (co-op) housing corporation when a shareholder sells their shares or interest in the co-op. It is not a tax in the traditional sense but rather a fee that the co-op charges to help cover the costs of building maintenance, and improvements, or to boost the co-op’s reserve fund.
The flip tax can be structured in several different ways, including:
- Fixed fee: A set amount that the seller must pay, regardless of the sale price.
- Percentage of sale price: A percentage of the total sale price, which is paid by the seller.
- Percentage of profit: A percentage of the net profit realized by the seller after deducting their original purchase price and any improvements.
- Per share: A set amount charged per share being sold. In a co-op, the shareholder owns a specific number of shares tied to their apartment, so this method is based on the number of shares being transferred.
The exact structure and amount of the flip tax can vary from one co-op to another, and it is typically spelled out in the co-op’s governing documents, such as the proprietary lease or bylaws. Prospective buyers should be aware of any flip taxes in a co-op they are considering purchasing, as it may affect their decision to buy or the eventual resale value of the unit.