Understanding NYC mansion tax
Buying a home is often one of the biggest purchases most people will make in their lifetimes. And although the excitement of purchasing a new property can easily overwhelm other details, it’s crucial that NYC buyers familiarize themselves with the closing costs and taxes that will be associated with their purchase. One such cost that is frequently overlooked is the NYC mansion tax.
The City of New York imposes a NYC mansion tax, which is an additional transfer fee that’s added to the existing real estate transfer taxes imposed by the State of New York. This supplemental tax applies to the conveyance of residential real property1 over $1 million in price and is paid by the buyer (or “grantee”). Residential real property includes a single-family house, a one-, two-, or three-family dwelling, an individual condominium unit, and a cooperative apartment.
New York’s original mansion tax was a flat 1% and was implemented in 1989 as a way to generate funds for mass transit upgrades. In 2019, the tax was updated with a progressive rate structure that starts at 1% for properties over $1 million and increases up to 3.9% on transfers with consideration of $25 million or more.
The supplemental NYC mansion tax is based on the difference between the sale price of a property and its assessed value, so it’s important to keep this in mind when considering your purchase. It’s also worth noting that these transfer fees cannot be financed, so they will need to be paid out-of-pocket at closing.
Since the new supplemental mansion tax was introduced, it’s become increasingly popular to purchase properties in high-end neighborhoods that are just above the threshold. However, this can prove to be an expensive move for NYC buyers, especially given the current state of housing prices in these areas.
For those who are looking to buy a Manhattan property that falls into this category, it’s vital that they understand that their total cost will be significantly higher than if they were to buy a home at a lower price point. This is especially true since the 1% NYC mansion tax can’t be financed, meaning that these buyers will need to come up with the full amount of the supplemental fee at closing.
As an added bonus, these taxes are only levied on the purchase of a new property. As such, if you’re planning on purchasing a multi-family home that could potentially be subject to the NYC mansion tax, it’s essential that you consult your real estate attorney about the best strategy for minimizing these added costs.
Fortunately, there are several strategies for doing this, including leveraging the equity in a previous purchase as well as taking advantage of certain tax credits available for homeowners. If you’re thinking about purchasing a high-end residential property in NYC, be sure to work with an experienced real estate professional.
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