The New York State Legislature passed a new progressive “mansion” tax on homes sold for over $1M during its March legislative session as part of the state’s 2019-2020 budget. Formerly a flat tax, the state’s new progressive mansion tax will increase commensurately with the sold home price.
For example, a home sold for between $2M – $3M will face a 1.25% tax. A home sold between for $25M or more would face a 3.9% tax.
Additionally, state lawmakers increased basic transfer taxes on homes $3M+ by 0.65% bringing the maximum tax rate to 4.55%. Also, its new rules levy increased taxes on all home sales over $2M along with tax hike surcharges on $10M+ homes to a minimum of $100,000 more in taxes than homes just under the $10M threshold.
While the law states that the tax “stays with” or “is owned by”
the new owners, the reality of New York’s sluggish sales environment is that sellers will bear the cost of this tax hike in such forms as price reductions on the home and/or more concessions made by sellers to buyers.
According to Jonathan Miller, president of the appraisal firm Miller Samuel, said, “In a soft market, where the seller is already weaker than the buyer in terms of negotiating, it (the new progressive mansion tax) is going to come out of the hide of sellers.”
Miller Samuel data tells us that Manhattan sales have dropped approximately -25% compared with two years ago and that luxury home prices are down nearly -15%. Inventory of luxury homes has increased dramatically; industry experts expect that inventory to hit 8,700 units by the end of this year. These “extra” 8,700-units translate into 6.4 years worth of product to sell.
The London-based real estate consulting firm Knight Frank sheds comparative light on how higher transfer taxes and stamp tax duties have hindered the London real estate market. In 2014, UK lawmakers raised its stamp tax duty to the maximum rate of 12% on home sales over 1.4M pounds. In 2016, UK lawmakers added an extra 3% tax on all second home and buy-to-rent sales. The result? London home prices fell -11.4% from 2016-2018, according to Knight Frank’s annual Wealth Report.
What are buyers and sellers to do in this new mansion tax environment effective July 1? According to Beth Stern, an agent with Corcoran, “…the tax has put a little fire under buyers…everyone wants to close now.” And for sellers? “Sellers who have watched their homes linger on the market are more likely to be among the most prepared to bend to the realities of the current market…”