Today, if you are purchasing a home, condo, or co-op in New York City, the mansion tax may be one of the most significant closing costs you will pay.
While the mansion tax may seem like a misnomer in a city where a $1 million dwelling doesn’t always feel like a “mansion,” it was when the lawmakers imposed this tax three decades ago. When the mansion tax was first proposed by Mario Cuomo back in 1989, the intent was to buffer the state’s budget. One of the ways of doing that was to impose a tax on wealthier individuals who were more able to afford it. But since then, the real estate market has changed dramatically in New York, and the $1 million price point may not be for a mansion at all but a relatively small apartment. Be sure to discuss mansion tax with your real estate attorney before you make an offer.
In 1989, $1 million could indeed buy a mansion, but now, as one of the most expensive areas in the country to buy real estate, you can easily pay this much for a small apartment in some areas of the city. But this tax is still in effect and still called the mansion tax, regardless of how opulent the piece of real estate you’re buying.
Initially, the mansion tax was a 1% tax paid at closing on any purchase of real estate over $1 million. Since then, it has been amended to a sliding scale tax based on several tiers of real estate prices.
If you are purchasing real estate for $1 million or more in New York, you will be subject to paying the mansion tax for that property. In 2019, state lawmakers agreed to a new schedule for the tax which is based on the purchase price of the property.
While properties costing $1 million are still taxed at 1%, the tax gradually increases, maxing out at 3.9% for properties purchased for $25 million or more. The tax structure is as follows for this year:
There has been much debate around the mansion tax and its future. The graduated tax rates were the first major changes that have happened in the decades since its inception.
For anyone trying to estimate closing costs for a real estate purchase in New York City, the mansion tax will need to be calculated and considered. This is regardless of what type of residential property you are purchasing, whether it is a single-family home, a condo, or a co-op.
If you have further questions about the mansion tax or any other closing costs that you will have to pay, an NYC real estate attorney will assist you in understanding your obligations. At Sishodia PLLC, we are a team of highly experienced New York City real estate lawyers who are here to guide any real estate transaction you may have, from a one-bedroom co-op to a commercial real estate investment. Call us at (833) 616-4646 or contact us through our online contact form to schedule a free consultation.