Closing costs, transfer and mortgage recording taxes, and prorations

Read the closing ledger

Closing costs can include legal services, title insurance, lender charges, recording fees, and taxes. A buyer debit increases cash required; a buyer credit reduces it. A seller debit reduces proceeds; a seller credit increases them. Earnest money already paid is a buyer credit, not a new closing expense. Federal law requires settlement disclosures to itemize borrower and seller charges and identify whose interest a title insurance premium covers.

New York transfer taxes

New York Tax Law § 1402 imposes the ordinary transfer tax when consideration exceeds $500: $2 for each $500 or fractional part. For $650,100 of taxable consideration, divide by $500 to get 1,300.2, round up to 1,301 units, then multiply by $2: $2,602. Certain residential conveyances and conveyances below $500,000 exclude remaining liens from consideration as specified in that section. In cities of at least one million people, § 1402 adds $1.25 per $500 or fraction for residential conveyances of at least $3 million and other conveyances of at least $2 million.

Under § 1404, the grantor pays the § 1402 tax; a contract may shift the expense to the grantee. If the grantor fails to pay or is exempt, the grantee has a duty to pay. Failure to pay produces joint and several liability, with a grantee recovery right against the grantor.

Section 1402-a adds 1% of residential consideration when total conveyance consideration is at least $1 million. It applies to the residential amount, not just the excess over the threshold. The grantee pays; if the grantee fails to pay or is exempt, the grantor must pay. Failure produces joint and several liability. Section 1402-b also imposes a tiered supplemental residential tax in cities of at least one million people, beginning at $2 million.

Mortgage recording tax

New York Tax Law § 253 taxes secured principal, rather than the sale price. Subdivision 1 imposes 50 cents per $100 and each remaining major fraction, with a 50-cent tax when principal is below $100. Subdivision 1-a adds 25 cents per $100 or major fraction, subject to exceptions. For qualifying property with no more than six residential units, the mortgagee pays that special additional component, subject to statutory exceptions. Subdivision 2 adds 25 cents outside the metropolitan commuter transportation district or 30 cents inside it, per $100 or major fraction; the first $10,000 is excluded from this component for qualifying one- or two-family residences. Local taxes and transaction-specific exceptions can affect the actual closing bill.

Prorate by time and payment status

Use the stated 360- or 365-day convention and the stated owner of closing day. Divide the period's charge by its days, multiply by the allocated days, then assign debit and credit. If the seller prepaid an expense covering the buyer's ownership, debit the buyer and credit the seller. If the buyer will pay an unpaid expense covering the seller's ownership, debit the seller and credit the buyer.

For a prepaid $3,600 annual bill, a 360-day convention, buyer ownership of closing day, and 90 days allocated to the buyer including closing day: $3,600 ÷ 360 = $10 daily; $10 × 90 = $900 buyer debit and seller credit.