The NYC mansion tax is a progressive tax imposed on residential real estate transfers over a million dollars. The mansion tax ranges from 1.0% to 3.9%, resulting in higher closing costs for those buying a home within the five boroughs.
But the term mansion tax can be a bit misleading because the tax does not just apply to massive estates with tons of square footage. Due to the high property values in New York City, even studios and one-bedroom apartments can cost over $1 million and be subject to the tax. Here is everything that New York City residents need to know about the NYC mansion tax.
How Does the NYC Mansion Tax Work?
The mansion tax in NYC applies to all real estate purchases within the five boroughs over $1 million. While $1 million may get you a literal mansion in other parts of the country, Manhattan residents can expect to pay that much for even a small condo or co-op. The tax is a percentage of the sales price, starting at 1%, and increasing with higher property values.
So, if a condo costs $1.2 million, the mansion tax for that property would be $12,000. Keep in mind that there are other taxes associated with property sales in New York, including the state and city transfer tax and mortgage recording tax if you are financing the purchase. So, it’s easy to see how quickly these costs can add up.
Who Pays NYC Mansion Tax?
The buyer is the one who is expected to pay the NYC mansion tax. The tax applies to the purchase of any premises used as a personal residence, including one to three-family homes and condos, and co-op units.
Even though it’s typically the buyer’s responsibility to pay the tax, it’s possible to negotiate and have the seller cover the additional cost. This rarely happens, but if you have some negotiating power and the seller is highly motivated, they may agree to chip in. Whoever ultimately agrees to foot the bill, it’s due within 15 days of the close of the purchase.
NYC Mansion Tax by Property Value
The NYC Mansion tax is based on a percentage of the final sales price and increases along with the value of the property. Here are the rates by final sales price.
|NYC Mansion Tax Rate||Sales Price|
|1%||$1,000,000 – $1,999,999|
|1.25%||$2,000,000 – $2,999,999|
|1.50%||$3,000,000 – $4,999,999|
|2.25%||$5,000,000 – $9,999,999|
|3.25%||$10,000,000 – $14,999,999|
|3.50%||$15,000,000 – $19,999,999|
|3.75%||$20,000,000 – $24,999,999|
|3.90%||$25,000,000 or more|
It’s important to understand precisely what you’ll pay in mansion tax so you can accurately assess your closing costs. As you can see, the higher the final sales price, the larger the tax bill will ultimately be.
The mansion tax on a $1.5 million co-op would be $15,000, whereas the tax bill on a $50,000,000 penthouse condo would be an additional $1.95 million. It’s vital to keep track of these taxes so you don’t get blindsided at the closing table.
How to Avoid the NYC Mansion Tax?
The simplest way to avoid paying the NYC mansion tax is to purchase a property that is worth less than $1 million. This may be easy or quite difficult, depending on where you’re looking. But purchasing a property worth $975,000 instead of $1 million can save you $10,000 in closing costs by avoiding this tax. So do your best to negotiate if possible.
Another option is to request that the seller pay the tax. This rarely works but can be feasible if the seller is highly motivated. For instance, if the property has been on the market for several months or the building is very strict on approvals, and only a limited number of buyers will qualify, this strategy may work.
The third way is to request a buyer commission rebate. This is when your broker agrees to give you a portion of their commission. The typical buyer commission rebate is between one-half and two-thirds of the commission or 1.5-2% of the sales price of the home. This should be more than enough to cover the mansion tax unless you’re buying a property in the eight-figure range.
But requesting a buyer commission rebate is easier said than done. You’ll have to find a broker who is willing to accept this arrangement, which can be difficult. But if you do your research beforehand and agree to handle some of the broker’s responsibilities, this arrangement may work.
NYC Mansion Tax History
The NYC mansion tax was first proposed in 1989 by the administration of former New York State governor Mario Cuomo. At the time, the city was facing some economic hardships and budget shortfalls and needed a way to bring in additional revenue.
Back then $1 million properties were scarce, and thus the tax was paid by a small group of very wealthy individuals. Today, the median sales price for all apartments in Manhattan is close to that $1 million threshold. So, the tax burden falls on the shoulders of almost anyone looking to purchase a property in a desirable New York City neighborhood.