Hamptons Transfer Tax Rules Changed on 4/1/23: Here’s What to Know

First-time buyers in the Hamptons are sometimes surprised to spot a mystery line-item on their closing paperwork: The Peconic Bay Community Preservation Transfer Tax, also known as the CPF tax or the Peconic Bay Tax. The CPF is financed through property transfer tax revenues, and has been responsible for the administration of land acquisition on Long Island, including here in the Hamptons. 

I am writing about this today because effective April 1, 2023, the towns of Southampton, East Hampton and Shelter Island have new property transfer tax legislation in place, including a new .05% housing tax, as well as changes to exemption amounts. 

Below is a little history about the CPF, as well as a rundown of the latest changes.

Why the CPF Tax?

The tax is collected in the towns of Riverhead, Southold, East Hampton, Southampton and Shelter Island, and includes the villages and hamlets within them as well. It was established as part of 1998 legislation efforts, gets folded into the buyer’s closing costs and goes towards conservation efforts in the town where the transaction takes place. Since starting in 1999, the CPF efforts have led to the preservation of more than 4,000 acres of vacant land as well as improving parcels of historic, recreational and environmental value. These funds are usually used by the towns to purchase farmland and other open spaces for preservation purposes, and to protect the gorgeous natural environment that draws so many would-be homeowners and vacationers to the East End. 

Think of it as an investment in the future. Among other things, the money is used to help fund the upkeep of the region’s expansive wetlands, beloved hiking trails, pristine beaches and meticulously restored historical buildings—all the things that made you fall in love with the area in the first place. Of course, it also means good things for your property value in the long term, and can help give buyers confidence that the area will retain its distinctive appeal. 

Some towns might set goals, such as keeping 40 percent of land within the town’s boundaries as preserved open space or farmland, as is the case in East Hampton.  Each town board has a member group to decide which of the approved properties to acquire. Towns will also schedule a public hearing when a particular property is brought to their attention as potentially available.  At this point the public can provide input to determine whether property should be added to the property acquisition list. 

Past CPF-funded projects have included several water quality improvement initiatives and farmland acquisitions throughout the East End, as well as the renovation of buildings like the Sag Harbor Cinema and the conversion of the former Lobster Grille Inn restaurant into the Manna Fish Farms hatchery.

What are the latest changes?

The Towns of Southampton, East Hampton and Shelter Island recently adopted new CPF legislation to provide financial assistance to first-time homebuyers who are either town residents or who work in the town, provided specific requirements are met.

Effective April 1, 2023, a new 0.5% housing tax will be added to all purchases. Combined CPF and housing taxes now equal 2.5% of purchase price. Previous exemption amounts have also changed. Starting on April 1, 2023, there are no exemptions for transactions of $2 million or more. For purchases under $2 million, revised exemptions are $400,000 for improved land and $100,000 for vacant land.

Example 1: Purchase a home for $2,000,000

• This is considered improved property with no exemption
• 2,000,000 – $0 exemption x 2.5% = CPF Tax of $50,000

Example 2: Purchase a home for $1,900,000

• This is considered improved property with a valid exemption
• 1,900,000 – $400,000 exemption x 2.5% = CPF Tax of $37,500

NOTE: if a contract is fully signed prior to 4/1/23, the old formula may still apply.  Please seek advice from your attorney.

About the Peconic Land Trust

The Peconic Land trust clearly states on their website that they do not receive the 2.5% real estate transfer tax. While many believe that the funds raised by the transfer tax go to the Peconic Land Trust for its conservation programs, this is incorrect. As the website states, “The Peconic Land Trust raises its own operating budget through charitable gifts and payment for professional services.” The 2.5% real estate transfer fee paid by buyers goes directly to the town where the purchased property is located. I encourage you to learn more about the Peconic Land Trust and their efforts to protect and preserve vulnerable Long Island land and shores. 

Disclaimer: The above info is provided as courtesy and should not be substituted for a thorough analysis by land use professionals, attorney or accountant.