It’s easy to get swept up in the excitement of buying a home. Afterall, it’s often the largest purchase most people make in their lives. One often overlooked part of the experience is closing costs and taxes. For New York buyers looking for homes in the $1M and up range, the mansion tax will be part of those costs. Find out more about New York’s mansion tax and who pays it below.
What is the mansion tax?
The mansion tax is a residential real estate tax collected by New York state for home purchases of $1M or more. While originally enacted in 1989 by then Governor Mario Cuomo, the mansion tax was increased in 2019 for homes in NYC as a method to bolster the city’s budget.
How much is the mansion tax?
This tax starts at 1% of the purchase price and gradually increases to a maximum of 3.9% for homes over $25M. The rates below include the 1% New York State tax in addition to the NYC increase.
2021 NYC mansion tax rates
- 0% for purchase price less than $999,999
- 1% for purchase price $1M to $1,999,999
- 1.25% for purchase price $2M to $2,999,999
- 1.50% for purchase price $3M to $4,999,999
- 2.25% for purchase price $5M to $9,999,999
- 3.25% for purchase price $10M to $14,999,999
- 3.50% for purchase price $15M to $19,999,999
- 3.75% for purchase price $20M to $24,999,999
- 3.90% for purchase price $25M and up
Let’s say you purchase an NYC apartment for $3,500,000. Using the rate guide above, that would mean a mansion tax rate of 1.50%. So in addition to other closing costs, you would owe a mansion tax of $52,500. For a deeper understanding of New York’s tax laws visit the Department of Finance website. A breakdown of the latest NYC rates and transfer tax instructions can be found here.
Is the mansion tax deductible?
The bad news is that unlike property taxes, the mansion tax is not tax deductible on your federal tax return. However, the mansion tax does increase your tax basis and can reduce capital gains taxes in the event you sell the property in the future.
It’s hard to imagine that NYC’s notoriously small apartments could be considered “mansions,” but buyers should definitely take into account the additional cost when budgeting for a home. While you may be able to afford the mortgage for a million dollar home, the additional tax will significantly impact the amount of closing costs you have to pay.
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