NYC Mansion Tax by Property Value
Who Pays Mansion Tax in NY?
How to Legally Avoid or Reduce the Mansion Tax
Dangers of Not Paying NYC Mansion Tax
Whose Idea Was the NYC Mansion Tax Anyway?
NYC Mansion Tax Bottom Line
|Purchase Price||NYC Mansion Tax|
|$0 - $1,000,000||0.00%|
|$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%|
The mansion tax is the responsibility of the home buyer. If you are buying a home in New York for over $1 million, you will need to pay a mansion tax. The tax is equal to a percentage of the home's purchase price. For example, a $1,200,000 home will be subject to a 1% mansion tax of $12,000.
- Buy a Home for Under $1 Million
- Cover Your NYC Mansion Tax Bill With a Buyer Rebate
- Ask the Seller to Cover the Mansion Tax
1. 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%.
2. Cover Your NYC Mansion Tax Bill With a Buyer 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.
3. Ask the Seller to Cover the Mansion Tax (or at least some of it)
Another way to avoid the NY mansion tax is to ask the seller to pay for it or at least part of it. Depending on the state of the real estate market, you could have a pretty good chance of having sellers say yes to picking up at least part of the tab.
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.
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.
While most NYC buyers won't be purchasing a mansion for $1 million, the mansion tax will be due for any purchase above this price point. And unlike some other real estate taxes and closing costs, it's almost impossible to avoid the NYC mansion tax, so you'll have to be ready to pay it. However, you can always get a commission rebate to help cover the cost of the mansion tax.