The Mansion Tax is a buyer closing cost applicable to the purchase of residential condos, co-ops and houses in NYC priced at $1 million or more. The Mansion Tax is the largest component of buyer closing costs in NYC which are approximately 4% for condos and houses and 2% for co-op apartments.
Prior to 2019, the Mansion Tax was a fixed 1% of the purchase price for all sales of $1 million or more. The Mansion Tax was amended in 2019 as part of changes to the New York Tax Law. The tax rates were increased on sales of $2 million or more, based on 8 different brackets with a maximum tax rate of 3.9% for sales of $25 million or more.
Estimate your Mansion Tax in NYC with Hauseit’s Interactive Mansion Tax Calculator for Buyers.
The Mansion Tax is just one component of the Real Estate Transfer Tax levied by New York State on the sale of real estate. Since the Mansion Tax is customarily paid by buyers while the normal transfer taxes are paid by sellers, the Mansion Tax is not usually referred to as a Transfer Tax in New York City.
The Mansion Tax in NYC is between 1% to 3.9% of the purchase price. The vast majority of deals have a 1% Mansion Tax rate, as this applies to sales of $1 million or more and less than $2 million. The amount of the Mansion Tax is outlined in New York Tax Law (Article 31), Section 1402-A and 1402-B.
It’s very common to find listings in NYC priced just below $1 million because of the Mansion Tax. Many sellers hope that by initially pricing below $1 million they can generate a large amount of demand, multiple offers and ultimately push the sale price above $1 million.
The easiest way to avoid paying the Mansion Tax in NYC is to request a Hauseit® Buyer Closing Credit. While this strategy won’t technically absolve you from paying the tax, the savings you’ll pocket from the closing credit will usually cover your Mansion Tax bill and leave you with money to spare.
Another way to avoid the Mansion Tax as a buyer in NYC is to ask the seller to pay it. However, you’ll want to keep in mind that the only way a seller will agree to this is if you as the buyer have some serious leverage. If you find yourself in a bidding war or a property has only been on the market for a few months, there is virtually no chance the seller will take your request seriously.
On the other hand, it’s not impossible for the seller to pay the Mansion Tax if you’re thinking of buying into a new development which is falling behind on its sale targets. Similarly, there’s a chance a seller will pay the Mansion Tax if their listing has been on the market for more than 6 months and/or the apartment has serious marketability issues caused by property condition, a poor layout, unrealistic pricing or poor advertising exposure.
The final way to avoid the Mansion Tax is to cap your search below $1 million. If you’re open to renovating, you could look for a property which is priced below $1 million simply because it needs a gut renovation.
The key difference between the Mansion Tax and regular Transfer Taxes is that buyers pay the former and sellers pay the latter. In other words, buyers pay the Mansion Tax and sellers pay the NYC and NYS Transfer Taxes.
NYC Transfer Taxes are 1% for sales of $500k or less and 1.425% for sales over $500k. The NYS Transfer Taxe is usually 0.4% of the sale price. A higher tax rate of 0.65% applies to sales of $3 million or more. This higher tax bracket was adopted in 2019 as part of tax law changes to both the Mansion Tax and the NYS Transfer Tax.
The combined NYC & NYS Transfer Tax rates for sellers are as follows:
1.4% for sales of $500k or less
1.825% for sales above $500k and less than $3 million
2.075% for sales of $3 million or more