If you are considering buying real estate in New York City, be prepared to pay additional taxes. The Big Apple altered New York State’s ‘mansion tax’ by enacting a scale of graduated rates on homes with a purchase price of $1M or more. The rate starts at 1% and goes as high as 4.15% for homes in excess of $25M.
The revised New York City ‘mansion tax’ was a welcome change from the originally proposed “pied-a-terre” tax. In the original pied-a-terre proposal, owners of New York City properties would have been subject to an annual tax as high as 4% on the value of their properties. Primary residences and homes under $5M, however, would have been excluded.
Under the original mansion tax, which is still applicable to property sold in New York State not located in New York City, a flat 1% tax was applied to all home purchase of $1M or more. Now the tax increases incrementally for all homes located in New York City with a higher price tag.
With median listing prices approaching $1M in New York City, nearly all property owners in New York City were subject to statewide original mansion tax before the change. However the revised mansion tax will now be costlier for those with properties worth over $2M.
The increased tax is expected to raise New York City $365 million during fiscal year 2020, which will secure about $5 billion in bonds for mass transit improvements.
Some unintended consequences of this increased mansion tax may be:
Sales reductions for high-end properties (in excess of $25M).
Increased amounts of affluent families choosing to buy in the surrounding counties or neighboring states instead of in New York City proper.
Excessive New York City property values may begin to stall or depreciate.
With the proceeds intended to be used for mass transit improvement, the average New Yorker, as well as neighboring commuters, should see benefits of the increased tax on their daily commute. If you do not live in New York, be wary, other states may be watching and taking note, especially those with large and expensive deteriorating mass transit infrastructures.