New York state legislature just agreed to increase the tax bill for high value properties in the state. The law, known as the “progressive mansion tax,” requires property owners that purchase a property with a value at or above $1 million to pay a larger tax bill.
How much is the tax? The tax has two components. The first is a fee on the purchase of the property. The exact fee will depend on how much the homeowner paid for the property, hence the “progressive” nature of the tax. Any property valued between $1 and $2 million dollars will pay a 1 percent tax. If the home was $2 to $3 million, the tax goes up to a 1.25 percent of the home’s value. The law can charge the homeowner up to 4.15 percent of the home’s value.
The second component is a transfer tax. Both are one-time fees.
How will the tax work? The change will result in a significant tax hike for these properties. An example of a property on the lower end of this scale and the higher end will help to illustrate the point.
- $3 million property. Under current law, a homeowner who purchases a property around the $3 million mark can expect an additional tax bill of approximately $84,000. The new progressive mansion tax would result in a bill closer to $107,000—over $30,000 more.
- $238 million property. A higher end property provides a better understanding of the “progressive” nature of this tax. Under current law, a $238 million property in New York City and Long Island would result in a $6.723 million tax obligation. With the new law? The same transaction would leave the property owner with tax obligations of about $14 million.
As of now, the tax law is set to go into effect on July 1, 2019.
The law could result in a tax collection dispute. Taxpayers that find themselves navigating these issues are wise to seek legal counsel. The attorneys with Goldburd McCone can help.