Posted by Leonard Steinberg on November 17th, 2013
New York State imposes certain taxes on what elected officials describe as ‘the rich’, but in actuality many of these taxes are a war on the middle class. The “Mansion Tax” is a 1% New York State tax imposed on the purchase of residential property (condos, co-ops and one to three family homes) selling for $1 million or more, excluding the sale of personal property and most closing costs. Where-oh-where is there a $1 million MANSION in New York? On New York standards, buying a $2 million apartment qualifies you as middle class…..at best.
Governor Mario Cuomo enacted the mansion tax in 1989 as a luxury tax to increase state revenue. This tax has never been updated to account for inflation or cost of living changes. $1 million in 1989 represents approximately $1,9 million today adjusted according to the Consumer Price Index, yet a Manhattan apartment that sold for $1 million in 1989 probably sells for $3 million or more these days. A few lawmakers have proposed bills to push the threshold from $1 million to $2 million, but the passage of these bills is uncertain.
Some idiots have even talked about raising the mansion tax, without mentioning that since it was introduced, property prices have soared and so too have the total dollars collected because of that 1%. London is considering enacting a 1% mansion tax on properties that sell for over $3 million: that makes a bit more sense.
When buying in new developments the transfer taxes will be considered part of the purchase price for the purposes of the mansion tax. Generally, transfer taxes are paid by the seller, but in transactions for new developments, sponsors usually shift the transfer taxes to the purchasers.
The only silver lining to the mansion tax is that a purchaser can eventually deduct the mansion tax from any capital gains resulting from a subsequent sale, similar to the way capital improvements can be deducted. Further, the mansion tax will usually not apply to the transfer of the real estate by gift, devise, bequest, inheritance or transfer by will.
It’s time to adjust the New York mansion tax to apply to properties selling for $3 million or more. If not, the name should be changed to the “SCREW-THE-MIDDLE-CLASS-TAX”.