Currently only one of these things exists in NYC: the so called mansion tax added to any real estate purchase over $1 million. Since the median price for a one-bedroom on Manhattan is a cool mil, this is less “mansion” and more “home” tax. Despite this, it seems unlikely that the number will change, and I’ll just hope the government uses this revenue for really cool things like making the subway not a pile of garbage (but unlikely cuz the MTA still needs to get Bain-ed a little). The pied-a-terre tax doesn’t exist yet, but is a proposed annual tax on properties that are a purchaser’s 2nd or 3rd or 19th home. Both of these taxes aim to increase NY tax revenue to use for important things, and are, in theory, aimed at the 1% or “luxury” market.
Let’s start with what actually exists, the mansion tax.
The mansion tax is a one-time fee of 1% of the purchase price added to all properties that sell for at least $1,000,000. If you are buying a co-op or resale condo for a price in the high-$900,000’s, you should be able to avoid it. However, if you are buying a new development condo the transfer taxes that you pay may put the amount over $1 million and you’ll be required to pay this tax. 1% of a million bucks is $100k, so this is no small amount. People try to find workarounds but the IRS is verrrryyyyy on top of this, and you may get audited. Unfortunately it’s something you don’t want to mess around with, so you should probably just pay it.
The government likes this tax because it increases their revenue, therefore their budget. Other people like it because they view $1 million as a luxury purchase even though that doesn’t get you very much in NYC. Opponents say that this tax is unfair because this is NOT a luxury apartment; many homes above that threshold are pretty modest. Wow, that was such an upsetting sentence to write.
I don’t have that much of a stance on the issue, other than it really sucks for people trying to buy a place for $1,000,500. It effectively jumps the purchase price up to $1,100,500. What a bummer! But this is something you should be hyper-aware of if you’re looking in that price-point, and your agent should guide you to make a smart choice. Work with good people, guys!
And now, for the hypothetical, the pied-a-terre tax.
I wrote about pied-a-terres before, so if you need a refresher here’s the link. While some co-ops do not allow pied-a-terres and insist that all owners use the apartments as primary residences, that has been the only limitation to second-home ownership. This proposed tax would be annual rather than one-time (unlike the mansion tax)
Basically, since the owners use this only as a foothold in the city rather than a primary residence or an investment property, they don’t pay the taxes that NYC residents do, while still counting on things like infrastructure and a police force paid for using said taxes. Again, people fall on both sides. Proponents say that the tax revenue provided will help fund the city and is only fair. These people have essentially been ducking paying their fair share, and since only the very wealthy can afford to have a second home in NYC, this is an understandable luxury tax. Opponents, including most of the real estate industry, argue that these buyers will be discouraged from buying second homes because they won’t want to pay the tax. So this will actually DECREASE the amount of taxes the city will collect overall, and it will also hurt the real estate industry. Plus, they don’t use the same amount of resources as people who actually live here. To that last point, fair, which is why I assume the pied-a-terre tax would be lower than the taxes paid by those of us who live and work here full time.
I’m sure you’re all wondering, BUT ANNA, what do YOU think about this proposal? You have SO MANY OPINIONS! And you’re right. Honestly, as someone who primarily works with buyers who are looking for a first home and sellers who have either been living in their apartments or renting them out (and paying taxes to NYC on that rental income), it’s not something that has been at the forefront of my mind. I think, for me, there is merit to both sides and the jury’s still out. It’s hard to guess what ripple effects will happen from something like this, and I don’t have a complete enough grasp on the situation and that buyer pool to know where I stand.
But Cuomo is against the tax sooooooooooooooooooo…maybe I’m for it? Just kidding; I’m not just a contrarian for contrary’s sake (will leave that to the Republicans) #micdrop!
Alright guys, clearly I should cut this off before I get too political, but at least now you know about another purchase consideration and another one of the many real estate reforms currently being proposed in NYC.