What Is the Mansion Tax in New York City?

Today, if you are purchasing a home, condo, or co-op in New York City, the mansion tax may be one of the most significant closing costs you will pay.

While the mansion tax may seem like a misnomer in a city where a $1 million dwelling doesn’t always feel like a “mansion,” it wasn’t when the lawmakers imposed this tax three decades ago. When the mansion tax was first proposed by Mario Cuomo back in 1989, the intent was to buffer the state’s budget. One of the ways of doing that was to impose a tax on wealthier individuals who were more able to afford it. Since then, the real estate market has changed dramatically in New York, and the $1 million price point may not be for a mansion at all, but a relatively small apartment. Be sure to discuss the mansion tax with your New York City real estate lawyer before you make an offer.

At Sishodia PLLC, our experienced lawyers are well-versed in the nuances of New York real estate law. We can provide you with legal guidance on addressing the challenges of the mansion tax and can help you avoid the NYC transfer tax. Our team understands the evolving nature of the market and the implications of this tax on various property types. For personalized guidance, contact us at (833) 616-4646 to schedule a consultation.

What is the Mansion Tax in New York City?

The New York mansion tax starts at 1% for properties sold at $1 million or more. The rate increases progressively up to 3.9% for properties over $25 million. This tax applies to residential real estate purchases and is typically paid by the buyer at closing.

When You Aren’t Buying a Mansion, But You’re Paying a Mansion Tax

In 1989, $1 million could indeed buy a mansion, but now, as one of the most expensive areas in the country to buy real estate, you can easily pay this much for a small apartment in some areas of the city. But this tax is still in effect and still called the mansion tax, regardless of how opulent the piece of real estate you’re buying.

Initially, the mansion tax was a 1% tax paid at closing on any purchase of real estate over $1 million. Since then, it has been amended to a sliding scale tax based on several tiers of real estate prices.

How Much is the Mansion Tax Now?

IIf you are purchasing real estate for $1 million or more in New York, you will be subject to paying the mansion tax for that property. In 2019, state lawmakers agreed to a new schedule for the tax which is based on the purchase price of the property.

While properties costing $1 million are still taxed at 1%, the tax gradually increases, maxing out at 3.9% for properties purchased for $25 million or more. The tax structure is as follows for this year:

• Purchases of $1 million to $1,999,999 – 1%
• Purchases of $2 million to $2,999,999 – 1.25%
• Purchases of $3 million to $4,999,999 – 1.5%
• Purchases of $5 million to $9,999,999 – 2.25%
• Purchases of $10 million to $14,999,999 – 3.25%
• Purchases of $15 million to $19,999,999 – 3.5%
• Purchases of $20 million to $24,999,999 – 3.75%
• Purchases of $25 million and over – 3.9%

There has been much debate around the mansion tax and its future. The graduated tax rates were the first major changes that have happened in the decades since its inception.

Who Pays The Mansion Tax In New York State?

In New York State, the buyer pays the mansion tax when purchasing residential property priced at $1 million or more. The tax starts at 1% and increases on a sliding scale up to 3.9% for properties priced over $25 million. This tax must be paid at closing unless the seller agrees to cover it.

If the buyer is unable to fulfill the payment or meet the requirements for an exemption, the responsibility for this tax then transfers to the seller. The amount is calculated as a percentage of the property’s purchase price. For example, if a home is priced at $1,200,000, the mansion tax would be 1%, resulting in a total tax of $12,000. Although a 1% tax might seem relatively small, especially when compared to the overall property cost, it constitutes a substantial portion of your total cash investment, particularly if you are financing the acquisition.

This tax is applicable when purchasing any property that is or could be utilized, wholly or partially, as a personal residence. This description covers a range of residential real estate, such as single-family, duplex, or triplex houses, individual condos, and cooperative apartment units.

Whether you’re a buyer, seller, or investor, understanding who is responsible for paying the mansion tax and how it applies to your transaction is crucial. At Sishodia PLLC, our New York City real estate lawyers can provide you with comprehensive legal guidance tailored to your unique situation. We can help you address the details of the mansion tax and provide you with the assistance needed to make well-informed decisions. Contact us today to schedule a consultation and secure your real estate endeavors with knowledgeable legal support.

How Can Buyers Legally Minimize the Mansion Tax?

Buyers can legally minimize the impact of New York’s mansion tax by using a few strategic approaches. One method is negotiating the purchase price. If a property is listed slightly above the mansion tax threshold, both parties may agree to reduce the sale price to fall just below the taxable amount. This may lead to savings that benefit both the buyer and the seller.

Another legal strategy is to separate certain non-real estate items from the transaction. For instance, if the home includes high-end furnishings or appliances, the parties may agree to transfer those items through a separate bill of sale. By reducing the recorded property price, this method may lower the tax owed. However, this must be done carefully, using accurate valuations and clear documentation, to comply with tax rules and avoid future issues.

A third option involves purchasing the property through a limited liability company (LLC). Some buyers choose this structure to take advantage of how the transaction is treated under certain tax codes. Depending on the jurisdiction and the deal’s structure, this may lead to reduced tax obligations. Still, this approach requires careful planning and should follow applicable real estate and tax regulations.

Each of these options comes with conditions and limitations. Buyers should review the legal and financial aspects with a skilled real estate attorney before moving forward. Taking the right steps early in the transaction can help reduce unexpected costs while staying within the law.

Question	Answer
Who pays the mansion tax in New York State?	The purchaser of the property is responsible for paying the mansion tax.
When does the responsibility transfer?	If the buyer can’t pay or qualify for an exemption, the seller becomes responsible for the tax.
When is the mansion tax paid?	The mansion tax is typically settled during the property sale’s closing stages.
What is the threshold for the tax?	The mansion tax applies to residential properties in New York valued at over $1 million.
How is the tax amount calculated?	The tax amount is calculated as a percentage of the property’s purchase price.
What types of properties does it apply to?	The tax applies to properties that can be used as personal residences, including condos, houses, and apartments.

You Must Consider the Mansion Tax As Part of Your Closing Costs

For anyone trying to estimate closing costs for a real estate purchase in New York City, the mansion tax will need to be calculated and considered. This is regardless of what type of residential property you are purchasing, whether it is a single-family home, a condo, or a co-op.

If you have further questions about the mansion tax or any other closing costs that you will have to pay, an NYC real estate attorney can assist you in understanding your obligations. At Sishodia PLLC, we are a team of highly experienced New York City real estate lawyers who are here to guide any real estate transaction you may have, from a one-bedroom co-op to a commercial real estate investment.

Call us at (833) 616-4646 or contact us through our online contact form to schedule a consultation.

from Sishodia PLLC https://sishodia.com/what-is-the-mansion-tax-in-new-york-city/