UPDATE: NYS 2020 budget has updated the mansion tax rate. Take a look here to see how it has increased.
Did you know the average New York homeowner lives in a mansion? At least that’s true according to Albany. Home purchases in New York state for $1M or more are subject to an additional transfer tax, to be paid by the buyer, and better known as the “mansion tax.” The “mansion tax” was first enacted in 1989 by Governor Mario Cuomo to bolster the state’s budget during an economic recession and was targeted at the highest income bracket of homebuyers. However, because the tax has never been adjusted for inflation or the astronomical appreciation in NYC home prices since 1989, today the “mansion tax” applies not just to the very wealthy, but the average homebuyer.
At the time it was enacted, the median sale price for a home in Manhattan was $298K, but today the median sale price is $1.685M — well in excess of the “mansion” threshold. In fact, most homes (62.6%) listed in Manhattan are “mansions” subject to the extra tax. Recognizing that the 1989 law was not intended to affect the average homebuyer, there have been several proposals over the years to adjust the “mansion tax,” but none to date have been successful. Some reforms have called for increasing the threshold to $1.75M, others have it adjust for inflation each year, yet others have proposed that a higher tax be applied to homes over $3 million.
Because the “mansion tax” applies to the entire purchase price, and not just the marginal amount over the threshold, the difference to a buyer between a $1M sale price and $999,999 is actually more like $10,001. Not surprisingly, this has distorted listing prices and offer strategy in the marketplace. Today there are 119 active listings in Manhattan and Brooklyn priced between $999,000 and $1 million; only 19 priced at $1 million.
It seems at the very least that the mansion tax is due for an updated name. The New York Times suggests the “Swanky Studio Tax.” Let us know in the comments what your suggestions are!