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The New York City real estate world is slowly evolving its regulations to create a more transparent market.
For example, in the past, buyers of one- to four-family dwellings could make a purchase under a limited liability company (LLC) without disclosing certain confidential information, such as specific members of the entity. But, why would individuals buy or sell under an LLC?
One reason to use an LLC is to lessen the amount of liability on the individual members of the LLC itself. Additionally, LLC users also have multiple tax benefits, including pass-through taxation. This means that any profit generated by the property passes through to the owner only – not through the members on their own or the entity itself – and could be claimed as individual income, therefore avoiding double-taxation. This arrangement was created to make it easier for businesses to form and operate, as well as to provide flexibility in the formation and management of an LLC.
The issues with the former system were reported by Senator James Skoufis after research was conducted by the Investigations and Government Operations Committee. The committee found that it was difficult to hold people responsible for violations and mistreatment of tenants and communities – because it was challenging to track down specific individuals.
After discussions in the state legislature, Governor Andrew Cuomo signed a new bill to change regulations as a promotion of transparency within the real estate industry. Effective September 13, 2019, the new New York State Tax Law and New York Administrative Code now require limited liability companies to disclose the names of individuals who own any membership interest in an LLC of a residential property. This includes the names of any directors, managers, officers and shareholders involved in the purchase or sale of a property. In addition, a business address must be provided for every individual. These laws cannot be changed and will be effective until the legislative session resumes in January 2020. And, even after this reanalysis of the bill, it could still remain active and perfectly intact.
The goal of these changes is to make it easier to confirm a property owner’s name and address; the public can see who is buying or selling a home in their surrounding area, and municipalities will also be able to enforce codes and rules in a more efficient manner.
While these regulations have been successfully implemented in New York City, the bill seeks to expand this to the state level. While 2019 is bringing about significant legal changes in the real estate industry, these new regulations are targeted at landlords and buyers in hopes of fostering a new wave of accountability and honesty to the real estate market on a statewide level.