The Mansion Tax has been a topic in the New York real estate market for some time, but if you’re jumping into the market you may wonder what it is. The Mansion Tax is a 1% surcharge that buyers must pay when purchasing residential property for over $1 million. Although $1 million is now a more appropriate price for a one or two bedroom in Manhattan than a mansion, at the time the tax was imposed the name was more reasonable.
You may have heard of the tax lately because of changes to the law that impact the real estate market. While it may give you some hesitation about entering the market, with the appropriate information it can be navigated just like every other factor in the buyer and seller dynamic.
What is the new Mansion Tax?
The discussion around the Mansion Tax is referring the changes to the tax first approved by the state on March 31st. The changes (that took effect July 1) continue the 1% surcharge on residential properties purchased for over $1 million. However, the big change is that the surcharge increases in tiers as the price of the property increases. That means that a $3 million would bring a 1.25% tax, a $6 million deal would bring a 2.5% tax, and so on up to $25 million, after which any purchase would bring a 4.15% tax.
The changes to the Mansion Tax also affected the state transfer tax, with the tax on the transfer of deeds increased from 0.4% to 0.65%.
Why Did the Mansion Tax Change
Like most laws there are a number of reasons this change was enacted, but there are a few factors that influenced the desire to adopt the tax. Discussion about raising the taxes on the sale of high-priced units had been taking place at the state and local level for a while, however two factors helped increase the momentum for the tax to be adopted when it did.
Firstly, the state has been looking for new revenue streams to improve the problematic public transportation system. They had originally considered raising the money through a tax on marijuana sales, however, the legalization of the very cannabis that was to be taxed had not been embraced, making the option difficult. At the same time, attention was called to the real estate market by the purchase of a 28,000 square foot pied-a-terre by billionaire Ken Griffin for $240 million.
The massive purchase sparked some outrage and led to a proposed pied-a-terre tax, so the state could receive more from luxury buyers like Griffin who don’t reside in NYC. However, the terms of the tax were so severe that they could’ve inhibited such sales from happening at all, thus lowering the tax revenue that could be earned. So the decision was made to increase the existing Mansion Tax according to the sales price of the property, rather than create a new tax.
Mansion Tax Effects
While the changes to the Mansion Tax could take some time to grow accustomed to, they likely won’t have a large negative impact on the New York City real estate market long term. In the short term it’s unlikely to deter buyers of high end luxury units, but may depress the price of condominiums in the range of $2 to $3 million. Overall, this tax change will add pressure to the top of the market, but will become just another part of the usual negotiations between buyers and sellers.
Interested in buying or selling real estate in Manhattan? William Bolls and his knowledgeable team are here to help with their years of experience. As a full service real estate firm, their hard work and dedication has gotten their property sales and listings featured in the New York Times and Brokers Weekly. Reach out to William today at (212) 405-1468 or [email protected]
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