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Understanding NYC mansion tax

Buying a home is often one of the biggest purchases most people will make in their lifetimes. And although the excitement of purchasing a new property can easily overwhelm other details, it’s crucial that NYC buyers familiarize themselves with the closing costs and taxes that will be associated with their purchase. One such cost that is frequently overlooked is the NYC mansion tax.

The City of New York imposes a NYC mansion tax, which is an additional transfer fee that’s added to the existing real estate transfer taxes imposed by the State of New York. This supplemental tax applies to the conveyance of residential real property1 over $1 million in price and is paid by the buyer (or “grantee”). Residential real property includes a single-family house, a one-, two-, or three-family dwelling, an individual condominium unit, and a cooperative apartment.

New York’s original mansion tax was a flat 1% and was implemented in 1989 as a way to generate funds for mass transit upgrades. In 2019, the tax was updated with a progressive rate structure that starts at 1% for properties over $1 million and increases up to 3.9% on transfers with consideration of $25 million or more.

The supplemental NYC mansion tax is based on the difference between the sale price of a property and its assessed value, so it’s important to keep this in mind when considering your purchase. It’s also worth noting that these transfer fees cannot be financed, so they will need to be paid out-of-pocket at closing.

Since the new supplemental mansion tax was introduced, it’s become increasingly popular to purchase properties in high-end neighborhoods that are just above the threshold. However, this can prove to be an expensive move for NYC buyers, especially given the current state of housing prices in these areas.

For those who are looking to buy a Manhattan property that falls into this category, it’s vital that they understand that their total cost will be significantly higher than if they were to buy a home at a lower price point. This is especially true since the 1% NYC mansion tax can’t be financed, meaning that these buyers will need to come up with the full amount of the supplemental fee at closing.

As an added bonus, these taxes are only levied on the purchase of a new property. As such, if you’re planning on purchasing a multi-family home that could potentially be subject to the NYC mansion tax, it’s essential that you consult your real estate attorney about the best strategy for minimizing these added costs.

Fortunately, there are several strategies for doing this, including leveraging the equity in a previous purchase as well as taking advantage of certain tax credits available for homeowners. If you’re thinking about purchasing a high-end residential property in NYC, be sure to work with an experienced real estate professional. 

NYC mansion tax rates

Amid New York City’s housing crisis, the government has introduced an initiative to make it more expensive for people to buy homes in the city. The new NYC mansion tax is a one-time transfer tax that affects anyone who buys a property in the city worth $1 million or more. This tax is paid by the buyer, and it must be paid at closing. Unlike other real estate transfer taxes in NYC, the NYC mansion tax is not negotiable and there is no way to avoid it.

In 2019, the mansion tax was overhauled to a progressive system based on price brackets. It currently starts at 1% for residential properties purchased for $1 million or more and goes up incrementally to a high of 3.9% on purchases for $25 million or more. This is in addition to the standard transfer tax that is charged on any purchase of a residential property in NYC.

While a lot of people are decrying this NYC mansion tax, some experts believe it’s necessary to help combat rising home prices and the affordability issues that come with them. Others argue that the current transfer tax is too steep for middle-income New Yorkers and will drive up prices further. Still, there’s no doubt that the NYC mansion tax will impact buyers, especially if the home prices continue to rise.

How Can Buyers Reduce Their Mansion Tax?

While it may seem unfair to pay such a large transfer tax on a small apartment, there are strategies that can be used to reduce the amount of money buyers have to pay at closing. For example, requesting a buyer agent commission rebate is a good way to lower the total cost of buying a home in NYC. This is because the typical buyer broker commission rebate saves NYC buyers a minimum of $20,000, which can fully offset the NYC mansion tax.

Another great strategy for avoiding the NYC mansion tax is to purchase an older, resale property. Since the mansion tax is a percentage of the property’s value, it is much higher on new developments and luxury properties. For this reason, many buyers choose to go for a more traditional apartment, which is often priced below the $1 million mark.

The NYC mansion tax is payable on the sale or transfer of a property, and it’s due within 15 days of closing. As such, it’s an important expense to include when estimating your closing costs. To ensure that the correct NYC mansion tax rate is applied, it’s always best to work with a knowledgeable and experienced New York City real estate attorney who will be able to calculate the proper amount. In many cases, the NYC mansion tax is paid along with other real estate transfer taxes such as the mortgage recording tax and documentary stamps, so ensuring that all the required filings are made is crucial. Your NYC real estate attorney can coordinate the submission of these filings post closing with the title company and your city clerk. 

NYC mansion tax thresholds

If you're buying a home in NYC, you'll soon find that the city's mansion tax threshold is higher than ever before. The new law went into effect in 2019, and it's a good idea to understand what the NYC mansion tax new threshold is and how it works before you start shopping.

The NYC Mansion Tax

The NYC mansion tax (New York State's Property Transfer Tax) is a one-time levy that kicks in at $1 million or more in purchase price. It applies to resale and new construction condos, single-family homes, and co-ops. It also includes sponsor units in new developments that are priced below the $1 million mark. The NYC mansion tax is a significant closing cost for buyers, and it's no surprise that people are looking for ways to avoid the NYC mansion tax levy.

A lot of people try to trick the system by agreeing to a published closing price below $1 million, but then paying the seller a bit more above that number "under the table." While this is a little bit illegal and can get you in trouble, it's still a common practice for a few sellers who are willing to go along with the scheme in order to avoid a much larger NYC mansion tax bill at the time of sale.

Ultimately, though, there's no way to completely avoid the NYC mansion tax. The threshold is only going up, and it's likely to hit $2 million or more in the next few years. The NYC mansion tax is designed to generate revenue that the state can use for things like fixing up the MTA's dilapidated rail lines.

As a result, it's not going away any time soon. In fact, the state legislature has been working to expand the NYC mansion tax.

The new NYC mansion tax law is set to pass this week and will be effective on sales after April 1st, 2019. It increases the state's transfer tax in seven tiers based on prices starting at the flooring of 1% on properties purchased for over $1 million. The final tier reaches 3.9% on sales over $25 million.

The City's mansion tax is an attempt to address income inequality in the region, where people with the most wealth have a bigger purchasing power than other groups of New Yorkers. It's a complicated issue, and the city hasn't been able to solve it completely.

Some people are hoping that Mayor De Blasio will make some changes to the current NYC mansion tax laws. He proposed changing the 1% tax to only apply to the sales of properties that are over $1.7 million in 2015. But lawmakers rejected the proposal, and it's doubtful that the mayor will be able to change things any time soon given the recent expansion of the NYC mansion tax last year. Regardless, you can always ask for a commission rebate to help lower your purchase price and avoid the one-time NYC mansion tax levy. Your broker should be able to give you advice on whether this is a wise strategy for your specific situation. 

Sishodia PLLC

Sishodia PLLC | Real Estate Attorney and Estate Planning Lawyer | Asset Protection Law Firm | 1031 Exchange - NYC

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