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 was 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. But 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 mansion tax with your New York City real estate lawyer before you make an offer.
At Sishodia PLLC, our lawyers are well-versed in the intricacies of New York real estate law and can provide you with legal guidance on navigating the complexities of the mansion tax and may be able to help you avoid the NYC transfer tax. We understand 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.
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?
If 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 mansion tax is a financial obligation that falls upon the purchaser of a property rather than the seller. 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. This tax obligation is typically settled during the final stages of the property sale, known as the closing. It comes into effect when an individual buys a residential property in New York valued at more than $1 million. 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 navigate the intricacies 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.
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 will 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 free consultation.
|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.|