Mansion Tax Adds to Array of Transfer Taxes When Buying, Selling Real Property

By Neil A. Sonenberg  |  September 27, 2021

Mansion Tax Adds to Array of Transfer Taxes When Buying, Selling Real Property

By Neil A. Sonenberg and Erin Kiernan

When buying and selling real estate in New York City, transfer taxes are generally expected. However, buyers of valuable real estate in New York City should also be aware of the Mansion Tax, an additional tax of 1% to 3.9% of the sales price over $1 million.

Real estate transfer taxes (RETT) are imposed by states, counties and municipalities on the transaction value of real property transferred within their jurisdictions. Like other taxes, transfer taxes have grown over the years to the point that buyers and sellers must take them into account when considering a transaction.

RETT applies to long-term leaseholds if the leasehold (inclusive of renewal options) is more than 49 years, the lease made significant capital improvements, and the lease includes substantially all the premises in the real property.

New York State imposes real estate transfer tax on transfers of real property or interests that exceed $500. The tax is computed as follows:

NEW YORK STATE TRANSFER TAX RATES

Sales Price

Property Type

NYS Transfer Tax Rate

Less than $3 million

Condos, co-ops, and 1-3 family houses

0.40%

$3 million and greater

Condos, co-ops, and 1-3 family houses

0.65%

Less than $2 million

All other types of property

0.40%

$2 million and greater

All other types of property

0.65%

As of July 1, 2019, certain transfers of real property or interests located in New York City are also subject to the following taxes: 

NEW YORK CITY TRANSFER TAX RATES

Sales Price

Property Type

NYC Transfer Tax Rate

$500,000 or less

Condos, co-ops, and 1-3 family houses

1%

Greater than $500,000

Condos, co-ops, and 1-3 family houses

1.425%

$500,000 or less

All other types of property

1.425%

Greater than $500,000

All other types of property

2.625%

Buyers of residential real property with sales prices over $1 million in NYC are also required to pay an additional NYS transfer tax called the Mansion Tax. This tax ranges from 1% to 3.9% based on sales price. There are eight different brackets that increase based on sales price. The highest rate of 3.9% applies for sales of $25 million or more. Mansion taxes are usually paid by the buyer. However, if the buyer is exempt from the tax for any reason, the seller then must pay it. Mansion tax applies to new development resale of properties, condos, co-ops and houses. Transfer taxes, both NYS and NYC, are the second largest closing costs after broker commissions.

The transfer taxes (other than Mansion taxes) are paid by the seller. The buyer does not need to pay the taxes unless the sales contract specifies otherwise. However, if the seller does not pay the tax, or is exempt from the tax, the buyer must then pay it. One exception where buyers usually pay the transfer tax is in new development. Unless it is negotiated otherwise, sponsors – the original owners or developers – normally pay the transfer tax. Buyers looking at new development in NYC should be aware that the price will actually be higher due to transfer taxes and, potentially, mansion taxes as well.

NYC exempts federal, state and city entities from the payment of transfer taxes. In addition, the transfer tax does not apply to the following situations:

  • A transaction with a United Nations or any other global organization of which the United States is a member

  • A transaction with any entity operated exclusively for charitable, educational or religious purposes or for the purposes of preventing cruelty to children and animals

  • A deed or instrument given solely as collateral or security for a debt or loan

  • A transaction from an agent to its principal and vice versa

  • A transaction by an executor as specified in a will. However, if an executor sells a property, then transfer tax still applies

  • A transaction where beneficial ownership stays the same

Even in the situations mentioned above, a real property transfer tax return must still be filed where you will claim the relevant exemption. This obligation to file is important especially in a situation where a transfer may only be partially exempt for RETT. An example of this could be a transfer by tenants in common to a partnership where each individual owns a different percentage.

In New York City, a real property transfer tax is paid on all transfers of real property, including co-op shares over $25,000. It also applies when transferring 50% of the ownership in a corporation that owns property. However, it does not apply to transfers of less than 50%. This is an important detail to note. Due to the often complex ownership of real estate in NYC, you may not be subject to transfer tax on transfer of ownership, specifically when beneficial ownership remains the same. A true gift does not include any exchange of consideration and would therefore be exempt from transfer tax. If a gift includes a transfer of liability, the relief of the liability is consideration and would be subject to transfer tax.

It is important to carefully factor in the transfer tax consequences when considering a real estate transaction. If you have any questions regarding the application of transfer taxes, please contact us.

Please contact Neil A. Sonenberg, Co-Partner-in-Charge, Real Estate Group, if you have any questions about this issue. Contributing to this article is Erin Kiernan, Senior Manager in the Real Estate Group at Marks Paneth.


About Neil A. Sonenberg

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Neil A. Sonenberg, CPA, is the Co-Partner-in-Charge of Marks Paneth’s Real Estate Group. With almost 40 years in public accounting, Mr. Sonenberg excels in a wide range of tax and accounting disciplines. His “out of the box” thinking and passion provide clients with an array of planning opportunities to maximize both tax savings and profits.  Mr. Sonenberg possesses expertise in all areas of real estate as well as wholesale and retail manufacturing and high-net-worth clients. He... READ MORE +


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