Overview, Exemptions, How to Avoid

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The New York mansion tax, which is applied to real estate transactions that exceed specific price thresholds, can add significant costs. Understanding how it works, who is subject to it, and what types of exemptions exist is key to navigating New York’s high-value real estate market. Whether you’re purchasing a luxury home or considering an investment property, working with a financial advisor can provide valuable insights into tax-efficient strategies that align with your financial goals.

The New York mansion tax is a real estate transfer tax originally introduced in 1989 as a flat 1% tax on properties exceeding $1 million. After decades of rising property values, New York lawmakers passed a progressive tiered system in 2019 that taxes multi-million dollar properties at greater rates.

Unlike some other real estate transfer taxes that are the responsibility of the seller, the New York mansion tax is part of the closing costs for the buyer. Homebuyers purchasing high-value properties now need to account for the additional cost when budgeting for their purchase.

The tax applies to all of New York State, but it has the most significant impact in New York City, where property prices frequently surpass the tax threshold. While suburban and upstate properties are less affected, high-end real estate transactions in those areas can still trigger the tax.

The New York mansion tax follows a graduated rate system which increases as the purchase price rises:

• $2,000,000 – $2,999,999: 0.25% (0.0025)

• $3,000,000 – $4,999,999: 0.50% (0.005)

• $5,000,000 – $9,999,999: 1.25% (0.0125)

• $10,000,000 – $14,999,999: 2.25% (0.0225)

• $15,000,000 – $19,999,999: 2.50% (0.025)

• $20,000,000 – $24,999,999: 2.75% (0.0275)

• $25,000,000 and above: 2.90% (0.029)

The mansion tax raises costs for high-value property sales, which may deter buyers and slow sales in higher price ranges. In expensive markets like New York City, where home prices often exceed the tax limit, it can also impact pricing and buyer demand. Here are four general ways the mansion tax can affect the real estate market:

• Influence on luxury home sales: High-end property sales have slowed in certain price brackets, as buyers reconsider purchases due to the additional tax burden. This trend has influenced pricing strategies among sellers.

• Shift in buyer preferences. Buyers who may have otherwise considered properties slightly above a tax bracket threshold are opting for homes just below to minimize costs. Some sellers have reduced asking prices to attract these buyers.

• Impact on investment properties. Investors purchasing multi-million-dollar properties must account for the mansion tax as an additional transaction cost, which can impact profitability and long-term investment portfolios.

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Here are four possible ways to avoid the mansion tax:

• Negotiate the purchase price: Since the tax applies only to homes priced at $1 million or more, sales just under that threshold avoid triggering the tax.

• Buy outside high-tax areas: While the mansion tax applies statewide, buyers looking to avoid excessive tax burdens may consider areas with lower home prices, particularly outside New York City.

• Explore legal ownership structures: In some cases, purchasing property under a different legal entity – such as a trust or business – may minimize tax exposure. However, this approach should be discussed with a financial advisor or real estate attorney to ensure compliance with tax laws.

• Leverage seller concessions: Some sellers agree to cover a portion of the mansion tax to make a deal more attractive to buyers. This is more common in a buyer’s market, where sellers need additional incentives to close a sale.

Here are three exemptions to consider:

• Government and public entities: Purchases made by government agencies, public housing authorities or certain organizations may be tax-exempt.

• Certain transfers between family members: In limited cases, property transfers between spouses, direct heirs or family trusts may not trigger the mansion tax, particularly if no actual sale occurs.

• Affordable housing developments: Properties that are designated for affordable housing or financed through specific housing programs may qualify for tax exemptions.

The New York mansion tax is a significant financial consideration for anyone purchasing high-value property in the state. While it primarily impacts luxury real estate, its effects extend to buyers, sellers and the overall market. Understanding its structure, exploring potential exemptions and considering legal strategies to reduce the tax burden can help you make informed financial decisions.

• If you want to lower your tax liability, a financial advisor who specializes in tax planning can help optimize your finances. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• SmartAsset’s tax return calculator has updated brackets and rates to help you estimate how your income, withholdings, deductions and credits will affect your next refund or balance due.

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