What is the NY Mansion Tax and How Much is it?
A mansion tax is property tax imposed at closing on residential property equalling $1 million and up.
Historically, this tax has been always a 1% tax on the purchase price regardless of amount above $1 million.
Recently, the state the has converted the tax to a progressive system based on price brackets.
The tax was first introduced in 1989 when $1 million would have afforded anyone substantial real property in New York.
For all intents and purposes, residential property starting at that price would have been considered a mansion.
Today, with the continuing rise of inflation, New York City real estate prices, and the shrinking of apartment square footage, $ 1 million would hardly get you a two-bedroom apartment in many areas of Manhattan.
To find out which neighborhoods in Manhattan are the most expensive, and which ones you might be able to find your "mansion" for a deal in read up on our article.
How Much is the Mansion Tax?
The mansion tax starts at 1% from sales prices ranging from $1-$2 million. The tax rate increases as the sell price increases.
The rates are as follows.
|Purchase Price Range||Tax Rate|
|$25 Million and Up||3.90%|
Here's how the increases will affect sales. Those buying at $2.25 million will see the tax fee go up by $5,625--that is from $22,500 to $28,125.
The tax makes a huge leap at $5 million up by 0.75% and even bigger leap at the $10 million make by an entire percentage point.
At a sales price of $11 million, you're seeing an increase of $247,500 at closing--from $110,000 to $357,000.
The rationale is that most purchasing at $5 or $10 million won't be cash strapped to close.
The new system does collect a significant amount in taxes, but from those who can supposedly afford to pay them.
Why Did New York State Change the Mansion Tax?
With the MTA in shambles, perpetually operating at a deficit and the outdated rail lines needing massive improvements and repairs, the state needed a new revenue source to fund this huge undertaking.
The state is estimating that this new progressive mansion tax will generate $365 million to fund present and future MTA projects.
Another factor that sparked this new set of taxes was the egregiously expensive purchase of a pied-a-terre by hedge fund billionaire Ken Griffin.
He closed at $238 million on a 28,000-square foot condo in Central Park South, which caused an uproar in city and state government--the same people who had been already playing with the idea of a pied-a-terre tax for years.
Now it seemed that with New York real estate prices and purchases climbing continuously to new heights, it was time to collect on those throwing their money around.
However, a pied-a-terre tax could permanently impede wealthy outsiders from buying and investing their money in the city.
So, they turned their attention back to the mansion tax and determined to revamp it to make the most for municipal coffers on future purchases.
These changes only apply to New York City residential purchases as the funds collected are earmarked for MTA projects.
New York State buyers outside of New York City can expect the same 1% mansion tax as previously enacted.
Can I Expect Any Other Changes to My Closing Costs?
Yes and no.
New York State will be collecting additional costs in transfer taxes at closing for purchases over $3 million in residential property.
The previous transfer tax was set at 0.4%, which still stay the same for closings under $3 million.
The new transfer tax for higher luxury purchases starting April 1, 2019, will be set at 0.65%.
This new rate will also be applied to commercial property that sells for $2 million and more. Be wary, that there is also an additional New York City transfer tax in addition, which start at 1%.
The transfer tax is paid by the seller, but traditionally in New York, you've seen this tax passed on to the buyer, especially when it comes to new development.
Today more than ever with oversaturation in the market in certain neighborhoods, it's possible to negotiate for this tax to be paid by the seller at closing.
Nonetheless, don't expect this for "hot" condos or buildings.
To get all the details on the state and city transfer taxes, read our article.
What Other Taxes Should I Be Aware of?
While the new state budget may seem more like a witch hunt on the rich, it's not all bad news for those with money.
Governor Andrew Cuomo had been discussing increasing taxes on the wealthiest New York state residents.
However, the taxes for the top earners--those who earn a million and more a year, will be guarded from any increase for the next five years.
Furthermore, the temporary property tax cap will now be permanent.
The property tax cap limited the property tax rate from increasing beyond 2% from year to year.
To get a headstart on buying your first home, read up on what you need to know and how to start prepping yourself to buy.