Mortgage Recording Tax on Breakage Costs Imposed Under Swap Agreements
Borrowers considering obtaining commercial loans with swap agreements may want to review the NYS Department of Taxation and Finance's recent tax bulletin (TB-MR-30) issued on June 5, 2012. The bulletin sets forth the conditions under which breakage costs associated with interest rate swap agreements will or will not result in the imposition of mortgage recording tax.
Breakage costs are the costs imposed under the terms of an interest rate swap agreement that allows the borrower to terminate the swap agreement prior to its maturity.
Terminating an interest swap agreement usually becomes a consideration when the borrower needs to refinance in order to obtain more money or to take advantage of falling interest rates. Since breakage costs can be quite substantial, this issue should be reviewed carefully to ensure that mortgage recording tax does not become an unforeseen cost to the borrower.
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