New York City is famous for its bright lights, towering skyscrapers, and high taxes. One of the most overlooked closing costs when buying a home is the New York City mansion tax. The New York Mansion tax applies to homes worth over a certain dollar amount and could potentially add five figures or more to the cost of buying a home. Here is an in-depth look at how the mansion tax works to help you set an accurate budget.
What Is the Mansion Tax in New York City?
The NYC mansion tax is a transfer tax applied to the sale of any property worth over $1 million. It was first introduced in 1989 when former governor Mario Cuomo issued a 1% tax on all million-dollar homes. Back then, the median home price in the Northeast was only $159,600, so $1 million got you a lot more for your money. However, the ceiling hasn't been increased, although new tiered tax brackets have been introduced.
Today, 30% of homes in the New York metro area are worth over $1 million. That percentage is even higher in places like Manhattan, where the median home price is already over $1 million. As a result, a lot more New York City homebuyers are on the hook to pay the mansion tax today compared to when it was first introduced.
How Much Is the Mansion Tax?
The mansion tax in NYC ranges from 1 - 3.9% of the sales price and increases based on the property's value. There are 8 different brackets, starting at $1 million and going up to $25 million.
Here is how that breaks down:
- $1 million - $2 million: 1%
- $2 million - $3 million: 1.25%
- $3 million - $5 million: 1.5%
- $5 million - $10 million: 2.25%
- $10 million - $15 million: 3.25%
- $15 million - $20 million: 3.5%
- $20 million - $25 million: 3.75%
- $25+ million: 3.9%
So for a $1.5 million apartment in NYC, the mansion tax would be 1% or $15,000. However, for a condo worth $50 million, the mansion tax would be 3.9% or $1,950,000. So it can be a significant expense, especially for pricier properties.
Who Pays the Mansion Tax in New York State?
It’s typically the buyer's responsibility to pay the mansion tax in NYC. Although not very common it is possible to convince the seller to pay the tax if you have strong negotiation power.
The seller is already responsible for paying the city and state transfer tax. The NYS transfer tax is 0.4% for homes worth less than $3 million and 0.65% for homes worth more than $3 million. The transfer tax in New York City is 1% for homes worth $500,000 or less and 1.425% for homes worth more than $500,000.
So, the typical seller is already paying 1.85% in combined NYS and NYC transfer taxes (even more if the property is worth over $3 million). Therefore, it often doesn't make sense for them to pay the mansion tax as well, which means most buyers will be stuck with the bill.
However, somebody has to pay for it. The law even states that if the buyer is somehow exempt from paying the transfer tax, it becomes the responsibility of the seller to pay. Although this is rare, and there are no specific exemptions that allow a buyer to avoid paying.
If the buyer simply fails to pay the tax on time, it becomes the joint responsibility of the buyer and seller to pay the tax.
What Types of Properties Does the Mansion Tax Apply To?
The mansion tax applies to all residential properties, including single-family homes, condos, townhomes, and new construction. There are no exemptions to paying the tax based on the type of property it is. However, certain types of transfers may be exempt under specific circumstances.
For instance, gifts or transfers without monetary consideration may be exempt, as well as those between spouses or family members. Transfers due to bankruptcy or legal proceedings may also be exempt. But in almost every residential sale, the mansion tax will apply.
Can You Get Out of Paying the Mansion Tax?
There are no official exemptions to the mansion tax if you're buying a home worth over $1 million. However, one clever way to avoid triggering the tax is to negotiate the purchase price to just below the $1 million threshold.
Due to the tax, it's rare for homes in New York to be listed for $1 million. Any properties that are valued at close to that threshold will instead be listed at $999,999 because decreasing the price by $1 can save the buyer from having to pay a $10,000 transfer tax.
So if a home you're interested in is worth close to $1 million, you could always submit an offer of $999,999 and see if the seller will accept. They might take it if the property is worth close to $1 million, but for homes worth significantly more than that, it's not likely to work. Otherwise, there isn't a good way to get around it. So, make sure to factor it into your budget if you're looking at homes in that price range.
Buying a home in New York City? Reach out to our sales team today to discuss your needs. As an authority on new builds, we can show you the best new construction listings on the market. We’ll show you every unit in the building, access floor plans, help you compare prices, and more. Finding your dream home has never been easier. Contact us today at hello@undividedre.com to get started.
