Saving on the Mansion Tax

Saving on the Mansion Tax

Did you know that in some cases, part of the NYS mansion tax is not due? The savings can be significant for certain transactions.

In New York State, the mansion tax adds a significant burden for buyers purchasing residential real estate priced over $1,000,000. The tax is 1%, so the sums are substantial—on a $2,000,000 home, it’s an extra $20,000. The mansion tax generally applies to the sale of any one, two or three family house, a condominium unit, or a cooperative unit in New York State. The tax is supposed to be paid by the buyer.

In some residential purchases, however, part of the mansion tax is not due. If part of the residential property is being used for commercial purposes, the mansion tax is reduced. The following example is quoted directly from Publication 577 of the New York State Department of Taxation and Finance.

“One unit of a two-family house is used for residential purposes, and the other unit is used for commercial purposes as a retail store. The owner sells the house for $1.5 million. The residential unit is valued at $500,000 while the retail unit is valued at $1 million. In determining whether the consideration for the conveyance is $1 million or more, the consideration for the entire conveyance must be taken into account. In this case, the consideration for the entire conveyance ($1.5 million) exceeds $1 million. Therefore, the conveyance is subject to the additional tax but only on the value of the residential unit ($500,000).”

In this scenario, the mansion tax due is only $5,000, as opposed to $15,000. The best practice, however, is to have the house appraised and values assigned to each portion prior to closing.