A residential real estate transfer tax levied on property purchases that cross a certain price threshold set in the law is known as the NY mansion tax. In New York property-related expenses, the mansion tax is considered a burdensome amount in closing costs when striking down a deal of property purchase.
We have compiled a complete guide what is NY mansion tax and how much is it?
New York state governor Mario Cuomo who is the father of the current governor Andrew Cuomo purposed the idea of a mansion tax in 1989. The basic concept was to tax wealthy New Yorkers who can afford to pay some money against new tax add something to the state’s treasure.
It was decided at the time that properties costing more than $1,000,000 placed the economic burden on a small group of high-earning. It was perceived that wealthy it is quite affordable for the wealthy new Yorkers.
The Effect of a Mansion Tax on a Residential Property Purchase in NYC:
Mansion gives a vibe of something extremely luxurious and comfortable while such is not the case as mansion tax is a completely different thing. When you are buying a home in NYC, the sale price cut off for the real estate transfer tax which is known as the NYC mansion tax is levied when purchase prices is $1,000,000 or above.
The good aspect is it is only incorporated when only for that price or above. In case you chose to purchase a home for $999,999.99, you do not qualify for a mansion tax.
Do not forget to consider this tax in your home budget if you aim to buy above the threshold set for the mansion tax or you will be comfortable to arrange the money in urgency when doing the purchase.
How to Calculate the Mansion Tax?
The simplest fact you need to know before anything else is that if the cost of your purchased property touches or crosses $1,000,000, you are supposed to pay a mansion tax. If you cross that limit, you have to submit the additional money which is called mansion tax. The percentage of the mansion tax does no vary but stays the same for each bracket of purchase.
New York State Senate and Assembly made a new schedule of mansion tax public under the umbrella of New York’s 2020 budget on March 31, 2019. The tax increases gradually as the prices increase. It starts with flooring of 1% on properties of $1,000,000 or greater and reaches up to a ceiling of 3.9% on properties bought with an amount of $25,000,000 or greater. The new rates became effective on the sales executed after April 1, 2019.
One interesting thing to learn is that the tax is only relative to the prices regardless of what type of property you are purchasing i.e. condo or co-ops.
The following are the rates of mansion tax rates:
|1||$1,000,000 to $1,999,999||1.00%|
|2||$2,000,000 to $2,999,999||1.25%|
|3||$3,000,000 to $4,999,999||1.50%|
|4||$5,000,000 to $9,999,999||2.25%|
|5||$10,000,000 to $14,999,999||3.25%|
|6||$20,000,000 to $24,999,999||3.75%|
$25,000,000 or greater
When you are doing calculations about the cost property is inflicting on you, do not forget to consider the mansion tax.
You may look at the bracket you fall, for example, if you end up buying a property for $3,700,000, you will have to pay an NYC mansion tax at a rate of 1.50% besides other closing costs mandatory for your agreement.
Can you Avoid Mansion Tax anyway?
You must be wondering how to avoid some of the taxes in a legal way to reduce the closing costs. Well, no matter how bitter it seems to have to pay hefty amount of taxes and fees when only purchasing a one or two-bedroom unit. But the truth is there is no way you can avoid paying tax in NYC.
The only thing you can do is little adjustments to shrink your mansion tax bill in NYC is a hard negotiation with your buyer if you are falling on the edge to avoid some round figures for the tax bracket.
When did you suppose to Pay Mansion Tax?
In a literal sense, the mansion tax shall be considered a real estate transfer tax. You can take a cue from the meaning as it is subject to payment attached with a Form TP-584. That means if you qualify for the criteria of a mansion tax, you have to pay it at the time of closing. If you are buying a property in NYC then the necessary filings are then typically submitted by the title company after closing.
The Bottom Line:
Without denying the fact, NYC is extravagantly expensive. It is not merely the real estate prices which are high but also the running costs and taxes which make affordability a bit tough. As long as mansion tax is concerned, the good aspect is if you do not cross the threshold of $1,000,000, you do not need to bother about the mansion tax. However, if your purchase crosses it, you have to pay the mansion tax.
By now, you must have got the complete insight into the mansion tax. We hope it would really help you to calculate your tax.