As Dolly Parton famously said, “It costs a lot of money to look this cheap.” Unfortunately, it costs a lot of money to look rich, too. Just ask anybody who has had to pay the NYC mansion tax — it is one of the most significant closing costs associated with buying an expensive home.
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When Was the Mansion Tax Introduced?
Created in 1989 by Governor Mario Cuomo, New York’s original mansion tax was a flat, 1% tax on statewide homes sales of $1 million or more. For example, back then, if a house, co-op, or condo sold for $1.25 million, the buyer would have paid a tax of $12,500. Sure, that seems like chump change compared to the purchase price. But if you do the math, it’s like treating yourself to a dollar bagel every single morning for — wait for it — four years. That’s a lot of bagels!
In 2019, the mansion tax was increased with a supplemental tax — but only for homes in New York City — as a funding mechanism for upgrading MTA subways.
“First-time NYC home buyers are usually surprised by the mansion tax. So it’s important for agents to educate buyers when discussing the buyer’s ‘price range’ in their real estate search,” says Kimberly T. Hastie, a licensed associate real estate salesperson at Brown Harris Stevens Residential Sales. “Best to identify this upfront to avoid last-minute surprises!”
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How Much Is the Mansion Tax in NYC?
If you have to ask, you can’t afford it. (Kidding!) Buyers of personal residences pay a statewide mansion tax of 1% for property purchased for $1 million or more. However, for properties in New York City, a new, additional supplemental tax on the mansion tax applies to the buyer. This extra tax rate will rise incrementally with residential real estate properties with purchase prices of $2 million or more, capping out at a total of 3.90% for properties sold at $25 million or above. That’s a lot of Benjamins.
Here’s some math
Let’s say you decide to treat yourself to a $7,000,000 condo in Tribeca. The supplemental tax rate due is 1.25% (a whopping $87,500), in addition to a 1% mansion tax of $70,000. Refer to this handy chart below.
|Purchase Price||Mansion Tax|
|Less than $999,999||0.00%|
|$1,000,000 – $1,999,999||1.00%|
|$2,000,000 – $2,999,999||1.25%|
|$3,000,000 – $4,999,999||1.50%|
|$5,000,000 – $9,999,999||2.25%|
|$10,000,000 – $14,999,999||3.25%|
|$15,000,000 – $19,999,999||3.50%|
|$20,000,000 – $24,999,999||3.75%|
|$25,000,000 or more||3.90%|
Who Pays the Mansion Tax in New York?
The buyer customarily pays the NYC mansion tax within 15 days of closing on the home. However, if a buyer doesn’t pay or is exempt, the seller must cover it according to the Department of Taxation and Finance. Why? If a buyer failed to pony up, the mansion tax becomes a joint responsibility, or in legalese, a several liability of the seller and buyer — sort of like having a roommate on the tax debt.
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Does the Mansion Tax Affect Co-ops, Condos, and Townhouses?
Yes. The mansion tax affects all residential property in New York, including condos, co-ops, and townhouses or brownstones. Mixed-use properties, such as a unit above a retail shop, also counts.
How Is the Mansion Tax Affecting the NYC Real Estate Market?
Way back in the summer of 2019, StreetEasy research suggested that sellers were carefully pricing their homes to avoid triggering the higher supplemental tax on mansion tax rates. Of course, New York deals have long tried to stay just below $1 million to bypass the mansion tax. New Yorkers are so savvy!
Is the Mansion Tax Deductible?
Nope. While the mansion tax is called a “tax,” it is not deductible. “Mansion tax is not deductible on the federal tax return, but it does increase the tax basis of your property,” says Xintian Wang, CPA, a manager at Dimov Tax Specialists. “The increase in the tax basis will ultimately reduce the capital gains you will have when you sell the property.” So, you may see a little boost on the back end when you go to sell.
And don’t forget another perk. If you have to pay the mansion tax, even if you bought a $1.1 million studio (it happens), you get to tell all your friends you just bought a mansion. Heyo!