Real Estate Alert: New Taxes on High Value NYS Transactions Take Effect July 1, 2019

As part of the FY2020 budget, New York State will seek new revenue from real estate transactions.   The final legislation is expected to yield hundreds of millions of dollars for state coffers and is intended to secure $5B in bonds for the MTA. It will:

  • Increase transfer taxes by 60%, from .4% to .65%
    • Commercial properties sold for $2M or more
    • Residential properties sold for $3M or more
  • Introduce a new “mansion tax” on high-end residential sales
    • Impacts residential properties sold for $1M or more
    • Graduated from 1% to 3.90% (see chart below)
    • Applies to 1, 2 and 3 family homes, including coops and condos
    • Limited effectively to New York City, as it applies only to cities with a population of 1 million or greater

Effective Date:  July 1, 2019—with Exceptions

The changes go into effect for transactions concluded after July 1, 2019 with an exception for transfers made pursuant to a binding agreement entered into on or before April 1, 2019.  Parties claiming an exemption for this reason will need to provide evidence such as a contract of sale or deposit.

It All Adds Up

The new tax structure will impact both parties in transactions, as the transfer tax is generally paid by the seller, and the “mansion tax” is expected to be the buyer’s responsibility.  Taken together, the new tax structure could increase the overall cost of transactions from 1% – 4.15%, depending on the sale price.
 

Sale Price Residential Tax “Mansion Tax” Total Tax
Up to $999,999.99 .4% n/a .4%
$1,000,000 – $1,999,999.99 .4% 1% 1.4%
$2,000,000 – $2,999,999.99 .4% 1.25% 1.65%
$3,000,000 – $4,999,999.99 .65% 1.50% 2.15%
$5,000,000 – $9,999,999.99 .65% 2.25% 2.90%
$10,000,000 – $14,999,999.99 .65% 3.25% 3.90%
$15,000,000 – $19,999,999.99 .65% 3.5% 4.15%
$20,000,000 – $24,999,999.99 .65% 3.75% 4.40%
$25,000,000 and higher .65% 3.90% 4.55%

Source:  New York State Department of Budget
 

Far-Reaching Impact

According to the Real Estate Board of New York’s New York City Residential Sales Report 4QT18, 11,063 homes were sold in all of New York City during the 4thquarter of 2018.  The median price city-wide was $900,000; for Manhattan it was $1,460,000.  From this, we can extrapolate that, at current rates of sale, roughly 5,000 transactions per quarter—20,000 transactions per year—could be subject to the “mansion tax.”  This could be mitigated slightly by a softening market; Elliman.com’s 2009-2018 Manhattan Decade Report shows a decrease in the median sale price of Manhattan apartments from $1,140,000 in 2017 to $1,075,000 in 2018.  This could give would-be buyers—especially with properties near the various threshholds—some leverage to negotiate a lower sales price.

Bottom Line

Owning real estate in New York City—whether for a primary or secondary residence or for investment purposes—has not been inexpensive since the City’s financial crisis in the 70s and early 80s.  The new and increased taxes on certain real estate transactions don’t do anything to change that.  They also do not undercut otherwise sound business and personal reasons for living and investing in New York properties.  The whole situation could have been worse; the “mansion tax” on transfers replaced a proposal for a recurring annual tax on non-primary residences (the pied-à-terre tax).


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