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The Mansion Tax is a one-time payment that is an entry fee for buying New York real estate. It applies to all homes sold for $1 million or more and increases as the property’s price increases, 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. Everything you need to know about the new Mansion Tax to keep you well informed is below.
The Mansion Tax in NYCThe Mansion Tax in NYC
The tax was first introduced in 1989 and applied to all properties sold or transferred for $1 million-plus. 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.
Technically it’s a transfer tax, but the critical difference is that it’s the responsibility of the buyer to pay. Previously the tax was a flat 1% of the sales price on all properties priced at or above $1 million. Its changes 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.
Mansion Tax GuideMansion Tax Guide
| 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?How Do I File and Pay?
You will activate the tax once the sales price reaches the $1 million trigger. Paying the mansion tax within 15 days of closing a property is required. If purchasing a co-op, your attorney will collect it from you and send it to the county clerk. The title company will collect and send it if purchasing real property, like a condo or townhouse. 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.
The newly increased mansion tax rates were approved last Sunday and will take effect on July 1. Unlike the mortgage recording tax, which you can avoid by purchasing a co-op, there’s no way around the mansion tax. It applies to all properties used in whole or in part as personal residences.
What Does This Mean for The Future?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 people have choices, and the tax fee effectively says, “Don’t live here.”
The already sluggish luxury market in New York City could see a further slowdown as buyers start to look elsewhere. But all that said, the tax may not impact the luxury market too severely in the long term. Things like this take time to assimilate; the New York market has always bounced back quickly after sudden changes. 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, we should consider it a bargain.
How Can I Avoid Paying the Tax?How Can I Avoid Paying the Tax?
You can avoid the mansion tax if the home sells for less than $1 million. However, the only situation where this is a viable negotiating ploy is when the price is around $1 million. If you think you can get about paying the mansion tax, we highly recommend you first talk with your real estate attorney and agent.