What is the New York City Mansion Tax?
The NYC mansion tax is a tax on any properties sold that transact at $1,000,000 or more. The tax is 1% of the sales price. The money goes directly to the city of New York.
Who pays the New York City Mansion Tax?
Buyers traditionally have to pay the mansion tax. This tax is paid at closing and will have been calculated into the buyer's closing costs (hyperlink to closing costs). The tax applies to any and all residential properties sold at $1M and above in New York City, across all five boroughs. Condos, coops, multi-families and townhouses are all included.
What is the argument against the Mansion Tax?
The main opposition to the mansion tax is two-fold. The most obvious observation is that one million dollars does not afford a buyer a mansion in New York City. Not even close! In Manhattan, the average 1 bedroom condominium hovers around the million dollar price point. Let's assume that a buyer is able to find a 2 bedroom coop near the $1,000,000 price point, that still doesn't define mansion status based on our view of a what mansion is. However, for the purposes of taxes, New York City will still consider anything at $1M and above as a mansion.
To put this in perspective, on a property priced at exactly $1,000,000, this will add an extra $10,000 in closing costs. These costs cannot be financed, meaning that the buyer will need to come up with this balance in cash. Ultimately, this tax ends up being a burden on buyers, while also negatively impacting sellers whose property pricing is impacted by the added cost a buyer needs to bear when putting in an offer above this threshold.
50 Clinton Street - Lower East Side - 601 Square Foot 1 Bedroom Condo - $1,075,000 - Does this look like a mansion to you?
Is there a new Mansion Tax being proposed?
You bet! Mayor Bill de Blasio has proposed a new mansion tax that will add 2.5% on any sale at and above the $2,000,000 price point. This has outraged buyers, sellers and professionals in the real estate industry.
Again, the same argument applies as for the $1,000,000 mansion tax. Properties hovering at the $2M range are not mansions. Buyers can barely find a 2 bedroom condominium for under $2M. On a property that is $2,000,000, the added cash required at closing for the mansion tax would be $40,000.
Additionally, one of the major concerns is that Manhattan would bear the bulk of the burden, since it has the majority of property closings at the $2M and above price point. This is inherently unfair, as the basis for the new proposed mansion tax is to fund the development of affordable units that De Blasio has been advocating for.
This tax HAS NOT yet been approved, so for the time being this is not a concern that buyers and sellers of New York City real estate need to consider, but it is definitely an important thought to keep in mind.
Several interesting articles have already been written discussing this topic:
http://ny.curbed.com/2017/2/18/14658006/bill-de-blasio-mansion-tax-affordable-housing-study
http://www.brownstoner.com/real-estate-market/new-york-city-mansion-tax-brooklyn-report/
NYC Property Taxes are becoming increasingly more complex to navigate.
We had the opportunity to recently write an article for StreetEasy documenting the rise and fall of the 421-A Tax Abatement. Combined with the reduction in available abatements and increased property tax assessments, it is becoming clear that New York City is inherently dependent on property taxes to fund its administration and operations.
If you currently own real estate in NYC and are looking to learn more about the status of your annual real estate taxes, we've created a guide for you as well.