There has been quite a buzz about the "mansion tax" lately, a tax that many in my profession are accustomed to dealing with on a day-to-day basis. I thought this would be a good opportunity to explain the tax, how it works and ask whether it should be changed in the future.
In 1989, then-Governor Mario Cuomo instituted Tax Law 1402-a -- a vehicle through which NY state could generate revenue. According to the New York State Department of Taxation and Finance (publication 577), Tax Law 1402-a, commonly referred to as the "mansion tax," imposes a "tax on each conveyance of residential real property or interest in residential real property when the consideration of the entire conveyance is $1 million or more." The "mansion tax" is equivalent to one percent of the purchase price, or, for example, $10,000 on a home purchase of $1 million.
But times have changed since 1989. According to the Bureau of Labor Statistics, $1,000,000 in 1989 has the equivalent buying power of $1,893,395.16 in 2014. To put this into perspective, according to Miller Samuel Inc., the 2013 year-to-date average sales price for co-ops was $1,171,552, and for condos was $2,115,228. If that doesn't relate, consider this: according to caranddriver.com, in 1989, a new Honda Civic cost between $6,385 (base model) -- $12,810 (fully loaded), whereas a new Honda Civic in 2014 will run you about between $18,980 (base model) -- $30,080 (full loaded).
I wonder, then, if it's time to raise the "mansion tax" from the $1 million threshold to a number that is above the average sales prices in Manhattan. If you've recently been in the market to buy in N.Y.C., you know that $1 million certainly does not get you a mansion. Amazingly, a $1 million dollar purchase only gets you about 650 square feet on average, according to a recent article in Business Insider. In thinking about all of the costs associated with buying a new home, I'm sure that most $1 million buyers out there could use their "mansion" money to purchase new kitchen appliances. Or, if you're a first-time home buyer, you could probably use the cash to help furnish your new home.
What do you think? Should Tax Law 1402-a be raised to a higher price point? Have you personally paid the tax? I would love to hear about your experience.