Albany has been working overtime this week with updates to the state budget, and two of the big changes will greatly impact New Yorkers. As the congestion pricing program and updates to the Mansion Tax have been in talks for decades, both have now become a reality (and not necessarily as expected) and are part of the 2020 budget.
The ground-breaking congestion pricing program, formally known as Central Business District Tolling (CBDT), is the first of its kind in the U.S. and has been enacted both to create a new stream of revenue to fund the MTA and to reduce the amount of traffic in Manhattan’s central business district (South of 60th Street). In the lead-up to the bill, many thought it would apply to TLC-plated cars only, but in its current form, the bill affects all cars entering the central business district.
While the bill is still being finalized, some specifics have already been determined: Drivers will only be tolled once on any given day, and 80% of the collected toll will go towards capital projects on subways and busses and the remaining 20% will be split between Metro-North and the LIRR. The actual price of the toll has not yet been determined by the newly established Traffic Mobility Board, but there will be exceptions (emergency vehicles and disabled drivers) as well as credits offered for some New Yorkers, including those who live within the central business district and those who earn less than $60,000 per year.
While CBDT has been praised by some, not everyone is happy about this historic bill. Taxis and ride-share services have long opposed it, as many drivers see it as a threat to their livelihoods. Drivers sued the State of New York over the congestion tax in 2018, and were able to get a temporary restraining order blocking the surcharge, but that order was recently lifted. While the congestion tax will supposedly make taking public transportation more efficient, it will certainly be a pricey change for drivers and cab-happy New Yorkers. Despite the growing controversy over CBDT, official tolling isn't slated to begin until the end of 2020 at the earliest.
The second surprise that passed as part of FY 2020 was an increase in transfer tax rates and revised Mansion Tax Schedule. NYS Transfer Tax is a tax imposed on sellers that, until now, was calculated at a fixed 0.4% of the Sale Price at all price-points. Under the newly passed budget, the State Transfer Tax rate will remain at 0.4% of the Sale Price for all Sales under $3M, but will increase to 0.65% for properties sold for over $3M.
The Mansion Tax is an additional Transfer Tax imposed on buyers for homes purchased for more than $1M. A few months ago, we wrote a blog post about this outdated law, which was enacted in 1989. There has been ongoing debate over the Mansion Tax for many years, as the median sale price of a home in Manhattan is now well above $1M (and the average New York home is certainly not what most people consider to be a mansion). Critics have long advocated to increase the threshold to remain consistent with the bill's original purpose — higher taxes for the very wealthy and not just the median buyer.
To the surprise (and dismay) of many, rather than raising the Mansion Tax threshold, NYS instead adopted a progressive taxation schedule that imposes additional taxes as price points climb. The newly passed Mansion Tax Schedule will still begin at 1% for homes over $1M (the status quo), but rates will now increase incrementally from 1% to 3.9% based on price. While much of the publicity has revolved around the 3.9% tax for homes over $25 million, the tax schedule increases taxes for all price points over $2 million:
Just like CBDT, these new tax changes won’t go into effect immediately, but they are likely to be happening very soon. The new progressive tax rates will apply to all closings that take place on or after July 1st, 2019. While it's hard to know what the long-term effects of these changes will be, many have speculated that the $3-5M price-segment will be the most immediately affected — If you’re waiting to make an offer, now might be the time to do so in an effort to close before the July 1st deadline!
We'll be keeping a close eye on this to see how it affects pricing and volume in the months to follow. Please don’t hesitate to reach out if you have questions about these changes, or how they may affect you in future real estate transactions.