What Is the Mansion Tax and How Does It Work?

The “mansion tax” is a specific real estate transfer tax applied to high-value property transactions. It serves as a revenue-generating mechanism, typically at the state or local level, to help fund various public services. This tax specifically targets luxury real estate sales by imposing an additional levy when a property’s sale price exceeds a predetermined threshold.

Defining the Mansion Tax and Its Local Nature

The “mansion tax” is a commonly used term for a real estate transfer tax or surcharge imposed by state or local governments, not a federal tax. These taxes are generally levied as a one-time fee at the time of a property sale, specifically on transactions exceeding a certain value. Its primary purpose is to generate revenue for public initiatives, such as funding affordable housing programs, supporting public education, or improving transportation infrastructure. Because these taxes are enacted at the sub-federal level, their existence, structure, and specific application vary significantly from one jurisdiction to another. This localized nature means a property might be subject to a “mansion tax” in one city or state but not in another, even if the sale price is similar.

Applicable Jurisdictions and Property Value Thresholds

While the “mansion tax” is not uniform across the United States, several states and localities have implemented versions of this high-value property transfer tax. New York State, particularly New York City, is well-known for its mansion tax, which applies to residential properties sold for $1 million or more.

California has also implemented high-value transfer taxes, particularly in Los Angeles. The City of Los Angeles imposes an additional transfer tax on real property sales exceeding certain thresholds. For properties sold between $5 million and $10 million, an additional tax rate applies, and a higher rate is imposed for sales at or above $10 million.

New Jersey also has a mansion tax, which applies to residential real estate sold for $1 million or more. This tax is applied to single-family homes, condominiums, and cooperative housing units. Connecticut has a graduated conveyance tax, with rates increasing for sales exceeding $800,000 and again for properties over $2.5 million. The District of Columbia also began taxing homes valued over $2.5 million.

How the Tax is Calculated

The calculation of the mansion tax varies by jurisdiction, often employing either a flat percentage or a graduated rate system. In New York City, the mansion tax is calculated using a tiered system that progressively increases with the property’s sale price. For instance, a property sold between $1 million and $1,999,999 incurs a 1.00% tax, while sales between $2 million and $2,999,999 are taxed at 1.25%. The rates continue to rise, reaching 3.9% for properties valued at $25 million or more. This tax is applied to the entire sale amount, not just the portion exceeding the threshold. For example, a $1.8 million property in New York City would incur an $18,000 mansion tax (1% of $1.8 million).

In Los Angeles, for example, a property sold for $8 million would be subject to a 4% tax on the entire $8 million, resulting in a $320,000 tax, in addition to the existing base transfer tax. If a property sells for $12.5 million, the 5.5% rate would apply to the full amount, equaling $687,500, plus the base tax.

New Jersey’s mansion tax has traditionally been a flat 1% of the total sales price for residential properties over $1 million. This means a $1.5 million property would incur a $15,000 tax (1% of $1.5 million). However, starting July 10, 2025, New Jersey will implement a graduated rate system, with rates ranging from 1% for sales between $1 million and $2 million, up to 3.5% for sales over $3.5 million.

The Payment Process and Responsible Parties

The mansion tax is typically paid at the time of closing for a real estate transaction, forming a part of the overall closing costs. Buyers or their representatives, such as a closing attorney or title company, are usually responsible for filing the necessary forms and submitting the payment. In New York, for instance, buyers must file Form TP-584, the Combined Real Estate Transfer Tax Return, and submit payment to the New York State Department of Taxation and Finance.

While the buyer is generally the responsible party for the mansion tax, payment terms can sometimes be negotiated between the buyer and seller. In a buyer’s market or for properties challenging to sell, a seller might agree to cover a portion or all of the tax to facilitate the sale. Such arrangements are not guaranteed and depend on market conditions and negotiation. If a buyer fails to pay the tax on time, responsibility can become a joint obligation of both parties. The tax collection is typically handled through escrow or by the title company overseeing the closing.