What Closing Taxes Cost on a 2 to 4 Family Rental in NYC
By Travis Penny, mortgage broker ·
I'm Travis Penny, and on a DSCR investment loan for a 2 to 4 family rental in New York City, the mortgage recording tax and the city transfer tax are the big two. Going from three units to four pushes you into higher brackets on both, but it takes you out of the mansion tax. If you're new to how these loans work, start with my DSCR loans page, and run your own numbers on the DSCR calculator.
That tradeoff surprises a lot of investors, so let's walk through it.
The main taxes at a glance
These are combined published rates from NYC Department of Finance and New York State tax sources. Check the current numbers with your attorney before you close.
| Tax | 1 to 3 family | 4+ family | Who usually pays |
|---|---|---|---|
| Mortgage recording tax, loan under $500,000 | 2.05% | 2.05% | Borrower (see note) |
| Mortgage recording tax, loan $500,000+ | 2.175% | 2.8% | Borrower (see note) |
| NYC transfer tax (RPTT), price $500,000 or less | 1% | 1.425% | Usually the seller on a resale |
| NYC transfer tax (RPTT), price over $500,000 | 1.425% | 2.625% | Usually the seller on a resale |
| NYS transfer tax | 0.4% (0.65% at $3M+) | 0.4% (0.65% at $2M+) | Seller |
| Mansion tax, price $1M+ | 1% | Does not apply | Buyer |
Note on recording tax: on 1 to 6 family homes, 0.25% of that total is a special additional tax that state law puts on the lender, and the borrower type doesn't change that. It applies the same on a business purpose loan to an LLC. State law says the lender can't pass it on to you, directly or indirectly (NY Tax Law §253(1-a)(a)), so check your Loan Estimate or term sheet and ask about it if you see it there.
A few more items. In the city, the state transfer tax goes up on higher price points as shown above, and there's a supplemental tax on residential sales at $2M and up. Who pays the transfer taxes can also be negotiated in the contract, and on some deals the buyer ends up covering them. Your attorney will tell you what your contract says.
Why the fourth unit matters
Recording tax is based on the loan amount. Once your loan is $500,000 or more, a 1 to 3 family pays 2.175% and a 4 family pays 2.8%. City transfer tax is based on price, and above $500,000 it jumps from 1.425% to 2.625% when you go to four units.
The mansion tax works the other way. It's 1% of the price on residential property at $1M or more, and residential here means 1 to 3 family homes and condo or co-op units. A building with four or more units isn't treated as residential for the mansion tax. So a 4 family at $1.2M skips a cost a 3 family at the same price would pay.
A worked example
These are round, made up numbers to show the math, not market prices. Say you buy at $1,200,000 with a $900,000 loan.
| 3 family | 4 family | |
|---|---|---|
| Mortgage recording tax | $19,575 (2.175%) | $25,200 (2.8%) |
| NYC transfer tax | $17,100 (1.425%) | $31,500 (2.625%) |
| NYS transfer tax | $4,800 (0.4%) | $4,800 (0.4%) |
| Mansion tax | $12,000 (1%) | $0 |
On the buyer side, the 3 family carries recording tax plus mansion tax. The 4 family carries a bigger recording tax but no mansion tax. The transfer taxes usually land on the seller, but they still shape the price and the negotiation. The fourth unit also brings more rent, and on a DSCR loan that's what qualifies the deal.
Property tax: Class 1 vs Class 2a
After closing, the property tax class changes too. Most 1 to 3 unit homes are Class 1. Rental buildings with 4 to 6 units are Class 2a.
Class 1 is assessed at 6% of market value, with increases capped at 6% a year and 20% over five years. Class 2a is assessed at 45% of market value, with caps of 8% a year and 30% over five years. Tax rates differ by class too, so don't guess. Pull the actual tax bill for the property, because that number goes straight into your DSCR payment.
Where this fits in your DSCR numbers
A DSCR loan compares the rent to the full payment: principal, interest, taxes, insurance and any HOA or common charges. Closing taxes don't go into that ratio, but they come out of your cash to close, and on a city deal they're real money. Budget them from day one.
These are business purpose loans on investment property only, closed in an LLC or corporation with a personal guaranty. See my New York City DSCR page for city specifics. Not everyone will qualify.
Residential home loans in Maine and Florida. DSCR loans on investment and rental properties in 38 states.
Want me to look at your deal? Run it through the DSCR calculator, read up on DSCR loans, then text me at (207) 615-7770 or use the contact form on this site.
Travis Penny, NMLS 1649161 | Vision Mortgage, NMLS 1286953. Subject to credit approval, income, property and program guidelines. Not all applicants qualify. Programs and guidelines can change without notice. Equal Housing Opportunity.
FAQ
- What is the NYC mortgage recording tax on a 4 family?
- On a loan of $500,000 or more on a 4+ family building, the combined published rate is 2.8%. Under $500,000 it's 2.05%. On a 4 to 6 family, 0.25% of that is legally the lender's tax, and state law says it can't be passed on to the borrower (NY Tax Law §253(1-a)(a)).
- What is the NYC transfer tax on a 4 family?
- The city transfer tax is 1.425% at $500,000 or less and 2.625% above that for buildings that aren't 1 to 3 family homes. On a resale the seller usually pays, but the contract decides.
- Does the mansion tax apply to a 4 unit building?
- No. The mansion tax applies to residential property, meaning 1 to 3 family homes and condo or co-op units, at $1M or more. A 4+ unit building isn't treated as residential for that tax.