The NYC mansion tax is based on how much a house cost to buy. In 2023, it will be between 1% and 3.9% of the price. The mansion tax rate goes up gradually with the price and only applies to houses that sell for $1 million or more.
NYC Mansion Tax by Property Value
Who is Liable to Pay Mansion Tax in NY?
The person who buys the house is responsible for the mansion tax. You have to pay a mansion tax in New York if you buy a house for more than $1 million. The tax is a certain amount of the home’s selling price. A home worth $1,200,000 will have to pay a 1% mansion tax of $12,000.
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Legally Avoid or Reduce the Mansion Tax
Buy a Home for Under $1 Million
Being able to buy a home for less than $1 million is the easiest way to dodge the mansion tax. There is no mansion tax if you buy a house or co-op for $999,999, which is less than $1 million. What if you pay one more dollar, though? Your tax is $10,000 if you round up to $1 million.
There are ways to lower the price below $1 million if you’re just a little above that mark, but this might not be possible for everyone. For instance, let’s say you’re interested in a $1,050,000 home that has some furniture you might want to keep. Your real estate lawyer might be able to get the price lowered to $999,000 and add a clause that says you have to buy the furniture for $51,000. In addition, you could offer to pay the seller’s broker fees, which are usually around 6%.
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Cover Your NYC Mansion Tax Bill With a Buyer Rebate
Hire an agent who will give you a buyer broker fee rebate. This is a great way to cover the cost of the NYC mansion tax. This means that the broker will give you some of their fee back. Real estate brokers will usually give you back half to two-thirds of their commission, which is about 1.5 to 2% of the price of the property. This is more than enough to pay your mansion tax bill. But in New York City, you can even find agents who will give you back up to 2.25 percent of the price of the house.
Ask Seller to Cover the Mansion Tax
You can also ask the seller to pay for the NY house tax, or at least part of it. There is a good chance that the buyers will agree to pay at least some of the cost, depending on the state of the real estate market.
Effects of Not Paying NYC Mansion Tax
Some people break the law and lie about how much they paid for their home to escape the mansion tax. If the tax people find out about this, they will fine the buyer and maybe even the seller a lot of money. Still, a lot of people take the chance because this tax is so high.
This is how it works. The buyer and seller agree on a public selling price that is less than $1 million. This keeps the mansion tax from being charged. The real price, though, is more than $1 million. They pay the difference “under the table.” It’s common for the buyer to pay a little more than the market price to get the deal to go through. This is something some sellers do to escape having to pay income or capital gains tax.
This is not something that buyers or sellers should do. It is against the law and very simple to be caught. If a house is sold for less than its market value, the tax officials will quickly notice something is wrong and will look into the deal. For a few extra bucks, it’s just not worth going to jail.
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