The Mansion Tax is a one-time payment that serves as an entry fee into buying New York real estate. It applies to all homes sold for $1 million or more and increases as the price of the property goes up along with the one-time state transfer tax. Expected to generate $365 million annually; planned to provide the desperately needed funding for an overhaul of the MTA.
To keep you well informed, here’s everything you need to know about the new Mansion Tax.
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How much is the Mansion Tax?
The tax was first introduced in 1989 and applied to all properties sold or transferred for $1 million or more. But $1 million does not buy you the home it used to in New York City. These days, $1 million will barely get you a one-bedroom condo in most of the city.
Previously the tax was a flat 1% of the sales price on all properties priced at or above $1 million. The changes made to it now provide a scale of levies that increase as the sales price increases. The 1% charge remains for properties priced between $1-2 million. As of now; it goes up in stages before capping at 4.15% for properties sold at or above $25 million. Technically it’s a transfer tax, but with the critical difference being that it’s the responsibility of the buyer to pay.
|Home price||Tax rate|
|$1M - $2M||1.00%|
|$2M - $3M||1.25|
|$3M - $5M||1.75|
|$5M - $10M||2.50|
|$10M - $15M||3.50|
|$15M - $20M||3.75|
|$20M - $25M||4.00|
|$25M or more||4.15|
How Do I File and Pay?
Once any sales price reaches the $1 million trigger, the tax will be activated. Within 15 days of closing on a property, paying the mansion tax is required. If purchasing a co-op; your attorney will collect it from you and send it to the county clerk. If purchasing real property, like a condo or townhouse, the title company will collect and send it in. While the tax may only be 1% on properties priced between $1 million and $1,999,999; that can still add up to quite a bit. For instance, the mansion tax on a $1,500,000 property would be $15,000.
Unlike the mortgage recording tax, which can be avoided, by purchasing a co-op, there’s no way around the mansion tax. It applies to all properties that will be used in whole or in part as a personal residence. The newly increased mansion tax rates were approved last Sunday and will go into effect on July 1.
What Does this Mean for The Future?
There is a real fear now that the mansion tax will scare off those that have the means to buy luxury property, especially International buyers. These kinds of people have choices, and the tax fee is effectively saying, “Don’t live here.”
The already sluggish luxury market in NYC could see a further slowdown as buyers start to look elsewhere. But all that said, in the long term, the tax may not impact the luxury market too severely. Things like this take time to assimilate; the New York market has always bounced back quickly after sudden changes. In time; the Mansion Tax may merely become another negotiation point between buyers and sellers. If that’s the price for making the subway run on time, then we should consider it a bargain.
How Can I Avoid Paying The Mansion Tax?
The only way you can avoid the mansion tax is if the home sells for less than $1 million. However, the only situations where this is a viable negotiating ploy is when the price hovers right around $1 million. If you think you can get about paying the mansion tax; then we highly recommend that you first talk with your real estate attorney and agent.