NYC Mansion Tax – Buyer’s Guide for 2023

                                                 By Prevu Team

The NYC mansion tax is a residential real estate transfer tax imposed on property purchases with a price over a specified dollar amount and for most New Yorkers the mansion tax is one of the largest potential closing costs when buying a condo, co-op, or residential home.

If you are planning to buy an apartment or home in NYC, below we’ve outlined what you need to know.

Key questions to ask about the mansion tax in New York City
.  What properties are subject to the mansion tax law?
.  How much this additional tax will contribute to your closing costs if applicable?
.  How you can offset these taxes and closing costs with the cost-saving strategy of a buyer commission rebate?
.  When do you pay and file the required forms for mansion tax?
.  What is the history and future of the mansion tax law?

When is a residential property purchase subject to the mansion tax in NYC?
While you may not exactly feel like you are buying a “mansion” when you are buying a condo, co-op or home in NYC, the sale price threshold for the real estate transfer tax (commonly referred to as the NYC mansion tax) kicks in when consideration for a purchase is $1,000,000 or greater for a home or apartment. This only applies to properties purchased for that amount or more so if you did buy something for $999,999.99, you owe nothing additional. A penny more and you will be subject to the mansion tax, and it is paid for by you the buyer at the time of closing.

Did you know you can get a buyer rebate from your real estate broker? Buying a NYC apartment with Prevu you’ll receive a rebate of two-thirds of the commission paid to the buyer’s broker at closing.

How much is the mansion tax?
If your purchase price is equal to or greater than $1,000,000 (1 million dollars), you will be required to pay an additional tax on your purchase. The percentage of that tax will now vary based on your purchase price.

On March 31, 2019, the New York state Senate and Assembly agreed upon a new schedule of mansion tax rates as part of New York’s 2020 budget. The new rates start at 1% beginning with properties of $1,000,000 or greater and gradually increase to a maximum of 3.9% for properties purchased for $25,000,000 or greater. These increased rates by price point became effective and imposed on purchases where contracts are signed after April 1, 2019 and the transaction closes after July 1, 2019.

The NYC mansion tax condo buyers pay is the same as the NYC mansion tax co-op buyers pay, assuming the same purchase prices for the two apartments.

Mansion Tax NYC – 2023 Rates
.  1.00% for purchases $1,000,000 to $1,999,999
.  1.25% for purchases $2,000,000 to $2,999,999
.  1.50% for purchases $3,000,000 to $4,999,999
.  2.25% for purchases $5,000,000 to $9,999,999
.  3.25% for purchases $10,000,000 to $14,999,999
.  3.50% for purchases $15,000,000 to $19,999,999
.  3.75% for purchases $20,000,000 to $24,999,999
.  3.90% for purchases $25,000,000 or greater
When you are estimating how much you will need to purchase an apartment or home in NYC or when your real estate attorney is calculating your closings costs in preparation of your transaction, it is important to include the mansion tax NYC buyers pay (if required) in your calculations for the appropriate rate based on your purchase price. For example, if you are purchasing a condo or co-op for $2,500,000, you will have to pay a NYC mansion tax at a rate of 1.25% or $31,250 in addition to all of the other closing costs associated with your purchase (assuming you signed your contract after April 1, 2019 and close after July 1, 2019).

NYC Mansion Tax Example ($2,500,000 apartment)
.  Purchase Price: $2,500,000
.  Down Payment: $750,000
.  NYC Mansion Tax (1.25%): $31,250

How can buyers avoid the NYC mansion tax?
Curious how to avoid mansion tax in NYC? While it may feel unfair to be hit with burdensome taxes and fees when only buying a one or two bedroom apartment, you can’t avoid paying this tax. However, the simplest way you can offset or reduce your mansion tax bill and closing costs in NYC and give yourself an advantage with the cost-saving strategy of a buyer commission rebate.

Receiving a commission rebate (also known as a commission refund) allows you to get cash back from your real estate broker. At Prevu, we are a technology-driven, full-service brokerage that passes a significant rebate along to our customers.

With Prevu’s Smart Buyer™ Rebate, you receive two-thirds of the commission Prevu receives for representing you as a buyer’s broker. For example, if you buy a $2,000,000 condo or co-op with a 6% commission (3% paid to seller’s broker and 3% to the buyer’s broker), your commission rebate totals 2% of the purchase price. That’s a savings of $40,000 that you can use to offset all of your $25,000 mansion tax and then some.

To estimate your potential closing costs and see if you’ll have to pay mansion tax, check out Prevu’s NYC closing costs calculator for buyers.

When do you pay and file the required forms for mansion tax?
As discussed earlier, the mansion tax is a real estate transfer tax, and as a result the applicable taxes will be submitted along with a Form TP-584 in the State of New York. For sake of simplicity, if your real property or co-op apartment is subject to the tax, you should anticipate paying at closing. The necessary filings are then typically submitted by the title company post closing if you are purchasing a condo, house, or townhouse in NYC. If you are purchasing a co-op, your real estate attorney will coordinate the submission.

What is the history of the mansion tax?
In 1989, the mansion tax was originally proposed by the administration of then New York State Governor Mario Cuomo (the father of current Governor Andrew Cuomo). The intention of this and other taxes levied in the law that finally passed was to improve New York State’s budget during a difficult economic period. At the time, taxing properties costing more than $1,000,000 placed the economic burden on a small group of high-earning, wealthy New Yorkers who were perceived as being able to afford it.

What is the future of mansion tax law?
Times have changed though! For many average New Yorkers, it’s hard to associate the term “mansion” with this tax when they are likely buying little more than a one-bedroom when just crossing over the $1,000,000 price threshold for the initial 1% tax.

In recent years, there has been growing debate around what will constitute a mansion tax in the future. In 2015, Mayor Bill Di Blasio proposed the idea of reforming the mansion tax laws with the potential to raise the minimum price threshold subject to the tax and/or increase the mansion tax rate for a second, higher price threshold to be determined.

The recent action by New York State at the end of March 2019, creating a graduated system of mansion tax rates, is the first major change in decades. It is likely to remain an ongoing topic of discussion among politicians as they consider the implications on housing affordability and future state budgets.

As always, the Prevu Team is here to help if you have any questions about the home buying process in NYC. You can reach us at team@prevu.com or (646) 603-6868.

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DISCLAIMER: This material was provided for informational purposes only, and is neither intended to provide, nor should be relied upon as tax, legal, or accounting advice. Prevu and its subsidiaries do not provide tax, legal, or accounting advice. You are encouraged to consult your personal tax, legal, or accounting professionals before considering any transaction as your individual situation may vary.