Mayor Bill de Blasio’s renewed calls for a “mansion tax” recently has garnered a lot of attention. While an additional tax may be off-putting to some, the proposal must be approved by the New York State legislature. The passage appears to face long odds, particularly since Republicans control the state Senate. It is worth noting that a similar proposal was rebuffed in 2015.
Nonetheless, although it has not been formally proposed, it is important to understand de Blasio’s plan and how it will impact your purchase.
The mansion tax being discussed is a 2.5% levy that applies to real estate sales above $2 million. According to the city’s Office of Management and Budget, the tax would affect 4,500 real estate sales in the coming year, bringing in approximately $335 million into New York City’s coffers. The city plans to use the increased cash to fund affordable housing aimed at low-income seniors.
The amount paid can become significant. For instance, a $3 million sale would force buyers to pony up an extra $75,000.
Buyers should not fret even if the unlikely event comes to pass. Even as currently discussed, those seeking a property below the $2 million thresholds will not pay the tax. Granted, New York City, has some of the priciest real estate in the world, making the $2 million levels seem low. However, while the 2016 average sales price for Manhattan co-ops and condos was $2.2 million, this is skewed higher by the jump in sales for condos at $10 million or more. According to some reports, the borough’s median sales price was about $1 million last year, and in the $700,000 to $800,000 range for Brooklyn. According to Deputy Mayor for Housing and Urban Development Alicia Glen, about 8.5% of New York City’s residential sales garnered more than a $2 million price tag.
Properties selling for around $2 million will likely be completed slightly below that level to avoid the extra tax. There could be a slew of sales at $1.99 million, and an absence of activity until $2.1 million.
As noted previously, a couple of years ago, Mayor de Blasio requested a 1% tax on home sales greater than $1.75 million and a 1.5% marginal rate for sales that were more than $5 million. This was rejected by the Legislature. The current musings for the mansion tax also come as Governor Cuomo’s state budget calls for a three-year extension of a higher marginal tax rate on those making more than $1 million a year, making another tax on wealthy residents difficult politically.
Trying to handicap legislation is difficult in the most serene times. The volatile nature of the current political climate makes it extremely challenging. There are also other moving parts to consider. For instance, upper-income taxpayers could receive a tax break should Congress pass a meaningful reduction in federal income tax rates, as President Trump discussed on the campaign trail. We previously discussed an optimistic and pessimistic view should his tax plan come to pass, but an immediate impact would be to create more discretionary income for higher-income earners that could more than offset the mansion tax that would be owed.