NYC Mansion Tax Guide

By PropertyClub Team
Dec 5th 2020
The NYC mansion tax was traditionally a flat 1 percent tax that applied to all homes sold for $1 million or more, but on July 1, 2019, New York State lawmakers implemented a new, progressive tax rate. NYC properties selling for $1 to $2 million will still be levied a 1% mansion tax, while rates will rise for properties sold for prices of $2 million or above, starting at 1.25 percent and reaching a maximum of 3.9 percent for properties selling for $25 million or more.

hash-markNYC Mansion Tax by Property Value

Purchase Price NYC Mansion Tax
$1,000,000 - $1,999,999 1.00%
$2,000,000 - $2,999,999 1.25%
$3,000,000 - $4,999,999 1.50%
$5,000,000 - $9,999,999 2.25%
$10,000,000 - $14,999,999 3.25%
$15,000,000 - $19,999,999 3.50%
$20,000,000 - $24,999,999 3.75%
$25,000,000 or more 3.90%

hash-markHow to Legally Avoid or Reduce the Mansion Tax

If you plan on buying in New York City, there are several ways to take the bite out of the Mansion Tax.

Buy a Home for Under $1 Million

The simplest way to avoid the mansion tax is to purchase a home for under $1 million. If you buy a condo or co-op for $999,999 – a dollar under $1 million – you pay no Mansion Tax. However, if you pay one dollar more, rounding up to $1 million, your tax is $10,000. While this may not be an option for everyone, there can be ways to reduce the purchase price below the $1 million threshold if you’re slightly above it. For example, let’s say you’re interested in a condo priced at $1,050,000 that happens to have some furniture you might consider keeping. Your real estate attorney may be able to reduce the purchase price to $999,000 while including a rider to purchase the furniture for $51,000. Alternatively, another option would be offering to pay the seller’s broker fees, which are typically around 6%.

Cover Your NYC Mansion Tax Bill With a Buyer Commission Rebate

A great way to cover the cost of the NYC mansion tax is to work with an agent who will offer a buyer broker commission rebate. In other words, the broker will rebate a portion of their commission to you. Typically, agents will rebate between half and two-thirds of their commission or around 1.5-2% of the property's price, which is more than enough to cover your mansion tax bill. In New York City, however, you can even find brokers who will rebate you as much as 2.25% of the purchase price. 

Ask the Seller to Cover the Mansion Tax (or at least some of it)

The New York real estate market has experienced a marked turn. It is no longer a seller’s market, particularly at the highest end of the market. An oversupply of super-luxury condos and co-ops have developers quite worried. They are very much open to granting concessions to buyers, much more so than they were just two years ago.

Ask the seller to pay for the Mansion Tax, or at least part of it. In this market, you have a pretty good chance of having sellers say yes to picking up at least part of the tab.

hash-markDangers of Not Paying NYC Mansion Tax

To avoid the Mansion Tax, some folks break the law and lie about how much they paid for their property. If caught by the tax authorities, this will put the buyer, and maybe the seller, in the clinker, coupled with a hefty fine. Nevertheless, because this tax is so large, many people take the risk.

Here’s how it works. A buyer and seller agree to a published closing price below $1 million, thus avoiding the Mansion Tax. However, the real final price is above $1 million. The difference between the two is paid “under the table.” The buyer usually pays the seller a little extra above the sales price for going along with the scheme. Some sellers do this to avoid paying income or capital gains tax.

Buyers and sellers should not be tempted to do this. Not only is it illegal, but it’s pretty easy to get caught. Any property sold below market value will quickly raise red flags among the tax authorities who will investigate the transaction. It’s just not worth spending time in jail for a few extra dollars.

hash-markWhose Idea Was the NYC Mansion Tax Anyway?

It was Governor Cuomo’s father who came up with the Mansion Tax in 1989 when he was Governor of New York. Back then, while you may not have been able to buy a mansion in New York City for $1 million, you could buy a lot more house than you can today. According to the CPI Inflation Calculator, $1 million in 1989 is today worth a little over $2 million

The obvious problem with the Mansion Tax is that it has yet to be adjusted for inflation. There have been efforts to revise the law, however. In 2015, Mayor Bill de Blasio wanted to change the law by keeping the 1% tax, but he would apply it to the sale of properties over $1.7 million. Lawmakers in Albany rejected that proposal.

The Mayor tried again in 2017, this time raising the tax to 2.5% but on properties selling for $2 million and over. Had this passed, it was estimated to generate over $300 million in revenue. Those funds would pay for affordable housing for seniors. This proposal, too, went nowhere.

hash-markConclusion: The Upside of the New York City Mansion Tax

All is not lost for those who pay the Mansion Tax. There is one rather unique benefit it provides buyers.

As they pull their Murphy bed down from the wall of their studio apartment, they can sleep well knowing they are living among the rarified elite in their spacious New York City mansion.