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New York City’s home buyers should know that the state charges an extra real estate transfer tax, which is commonly called the “mansion tax.” The buyer is responsible for the tax, unlike the regular transfer tax. This was designed to raise funds from wealthy buyers when the legislation was originally enacted by Governor Mario Cuomo in 1989.
However, since the trigger amount has not been adjusted for inflation, the tax ensnares many more New York City buyers. Even with a couple of rough patches, home prices are much higher than two decades ago. We explain the tax in order to better prepare our readership so that they can properly set a budget.
The mansion tax
The tax is 1% of the sale price if the home sells for at least $1 million. This was a lot of money to pay for a New York City property back in 1989. In fact, a buyer likely bought a luxury home.
However, that is no longer the case. The fourth quarter median sales price of all New York City homes was $618,000, up from $575,000 in the year-ago period, according to the Real Estate Board of New York (REBNY) fourth-quarter report. It rose about 5% to $1.01 million in Manhattan, and the borough’s median condo and co-op prices were $1.5 million and $775,000. Brooklyn’s median condo price is also above $1 million.
A million dollars may not purchase a large New York City apartment, but this does trigger the mansion tax. In other words, this is no longer a tax that only applies to the well-to-do.
How it works
Once the tax is triggered, the state applies the 1% rate to the entire purchase price. If you pay $1.5 million for your property, this triggers a tax payment, due within 15 days after closing, of $15,000. This applies to all types of residential properties (e.g. co-ops and condos).
The mansion tax also applies to new construction. In these cases, keep in mind, there might be certain costs and fees that are added to the purchase price. You may pay a price below $1 million, but these additions could push it above $1 million.
Mayor de Blasio proposed a NYC mansion tax in order to raise $180 million to $200 million annually in order to help fund affordable housing. This was back in 2015 and failed to gain traction with the Governor and the state legislature.
The mansion tax is rarely used as a stand-alone negotiating point. However, you should remember the tax goes into effect at the $1 million purchase price level. Therefore, you have an extra incentive to try to pay a lower price. Not only does it lower your mortgage payment, it also decreases your tax bill.
You can eliminate your entire tax obligation, providing the seller is willing to accept less than $1 million. Of course, this is reserved for situations in which the list price is right around $1 million. For instance, if the seller is willing to accept $990,000 rather than $1 million, you save the $10,000 mansion tax, which has to be paid immediately.