Will NYC Mansion Tax Hike Drive Buyers North?
By: Amie Pisano & Nicole Ball
With all the changes in real estate and tax law lately, it can be nearly impossible to stay in the know–especially with regard to how these changes affect us locally here in Rye. One interesting place to start is the “Mansion Tax,” a topic many of us homeowners here in Rye have become familiar as we bought our non-mansion-like homes. Property owners who have questions or inquires about property taxes and 1031 exchange rules may consult with a tax specialist.
A Little History: New York State’s mansion tax went into effect in 1989 under Governor Mario Cuomo. The tax was intended to boost the NY state budget by targeting the highest income earners. It is a 1% state tax on the sale of homes of $1 million dollars or more. So if you buy a home for $999,999 or less, the mansion tax doesn’t apply. If you buy a home for $1 million dollars or more, you pay this tax equal to 1% of the sale price: if the home is $1 million dollars, you pay a $10,000 mansion tax; if the home is $2 million dollars, you pay a $20,000 mansion tax. This applies to all residential property, including one to three-family houses, co-ops and condos throughout New York State.
Fast Forward to 2019: From the perspective of recent Rye home buyers, who may not be among the state’s highest income earners, the mansion tax may seem like a misnomer at best. This tax affects a lot of local homes, many of which are certainly not “mansions.” Obviously home prices have risen considerably since the late 1980’s. Back then, there were significantly fewer people buying homes at the $1 million dollar+ price level. In Rye City year-to-date, however, 50-55% of homes have sold for $1 million or more. So in our area, for most buyers, the mansion tax is just something that needs to be factored into closing costs – it is what it is.
The big news is that New York City’s mansion tax has just increased. This is only for New York City, and it applies only to contracts signed on or after April 1st for transactions closing after July 1, 2019. The tax remains at 1% for properties of $1 million or more throughout New York State, but rises to 1.25% for purchase prices of $2-2,999,999 million, and gradually goes up to a cap of 3.9% for purchase prices of $25 million or more in the City. (See full scale in table below.)
What Does This Mean for Rye? In theory, this should increase the pool of buyers moving out of New York City and translate into increased demand for homes here in Rye priced $2 million and up. We should start to see the market effect in the next few months as new contracts are signed and transactions close on luxury homes.
We in Rye are blessed with proximity to the City, thriving small businesses, walkability within town, our beautiful beach, and of course, our nationally recognized public school system. Sellers here have many built-in attributes with which to market homes, and now, we can add hefty financial incentives for luxury buyers from the City. Great news for property value and for sellers here in Rye!
To hear more, check out our Rye Record podcast @ https://ryerecord.com/the-houlihan-lawrence-moment-the-mansion-tax/
Just a reminder, please consult your attorney, accountant or financial professional to find out what these changes mean directly for you.
New York City Mansion Taxes as of FY 2020
|Purchase Price||Mansion Tax|
|Less than $999,999||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%|