How Much is Mansion Tax and Who Is Responsible for Paying?

A “mansion tax” typically refers to a specialized real estate transfer tax applied to high-value property transactions. These taxes are designed to generate revenue. Unlike federal income or property taxes, mansion taxes are not uniform across the United States, as they are enacted and administered at the state or local level.

Understanding Mansion Tax: Definition and Scope

The term “mansion tax” is an informal descriptor for a transfer tax, documentary stamp tax, or real estate excise tax. These taxes are triggered when a property sale exceeds a predetermined value threshold, representing a one-time fee paid at the time of closing.

What constitutes a “high-value” property is not uniform; each jurisdiction sets its own thresholds, which can range from $1 million to several million dollars. The tax applies to the transaction itself, not the physical size or architectural style of a property. Therefore, a modest apartment in a high-cost urban area could be subject to a “mansion tax” if its sale price crosses the local threshold.

How Mansion Tax is Calculated

Mansion tax calculation involves understanding the rate structure and property value threshold. Two common methodologies are employed: a flat rate or a marginal/tiered rate system. Under a flat rate system, a single percentage is applied to the entire sale price once the property value meets or exceeds the specified threshold. For example, if a jurisdiction imposes a 1% mansion tax on sales over $1 million, a $1.5 million sale would incur a $15,000 tax (1% of $1,500,000).

A more complex approach involves marginal or tiered rates, where different percentages are applied to successive portions of the sale price. For instance, a hypothetical structure might tax properties between $1 million and $2 million at 1%, and the portion of the sale price above $2 million at 1.5%. In this scenario, a $2.5 million property would be taxed 1% on the first $2 million ($20,000) and 1.5% on the remaining $500,000 ($7,500), totaling $27,500. The tax base is almost always the gross sale price, encompassing the full consideration paid for the property.

Real-World Examples of Mansion Tax

In New York City, a mansion tax applies to residential properties sold for $1 million or more. The rates are tiered, starting at 1.00% for properties between $1,000,000 and $1,999,999, increasing progressively to 3.90% for properties valued at $25,000,000 or greater. For instance, a $1.5 million property in New York City would incur a 1.00% mansion tax, amounting to $15,000. A property selling for $5.5 million would face a 2.25% rate, resulting in a tax of $123,750.

Los Angeles implemented Measure ULA, often referred to as a “mansion tax,” which imposes additional transfer fees on high-value property sales. Properties with a sale price between $5,150,000 and $10,299,999 are subject to a 4% additional tax. Properties selling for $10,300,000 or more face a 5.5% additional tax. This tax applies to the entire sale value, not just the amount exceeding the threshold. For example, a $6 million property in Los Angeles would incur a 4% tax, totaling $240,000, in addition to standard transfer taxes. A $12 million property would be subject to a 5.5% tax, resulting in a $660,000 charge.

New Jersey also has a mansion tax, imposing a 1% tax on residential property sales over $1 million. This tax is calculated on the total purchase price, not just the amount exceeding the threshold. For example, a $1.2 million home in New Jersey would incur a $12,000 mansion tax.

Who Pays Mansion Tax

The responsibility for paying a mansion tax, or related high-value transfer tax, varies by jurisdiction and is typically stipulated in local tax laws. In many areas, the buyer is designated as the responsible party for this specific tax. For example, in New York City, the mansion tax is typically the buyer’s responsibility and is paid at the time of closing.

Conversely, other jurisdictions place the burden on the seller. Los Angeles’ Measure ULA, for instance, generally requires the seller to pay this additional transfer tax. However, in some instances, the responsibility can be negotiated between the buyer and seller, regardless of the default rule. Market conditions can influence these negotiations; for example, in a buyer’s market, a seller might agree to cover a portion of the tax to facilitate a sale.