The Mansion Tax in Westchester is 1% of the purchase price and is applicable to purchases of residential property of $1 million or more.
The Mansion Tax does not apply to homes priced below $1 million.
The Westchester Mansion Tax is applicable to the purchase of to all residential real property or interest in residential real property. This includes one to three family houses as well as condos and co-ops.
The Westchester Mansion Tax is one of several buyer closing costs which include the Mortgage Recording Tax, Title Insurance and attorney fees.
The Mansion Tax is part of the real estate transfer tax imposed by New York State on sales or transfer of real estate under New York Tax Law Article 1402-a. It was originally enacted in 1989.
Because it has not been adjusted for inflation, the Mansion Tax impacts a substantial number of transactions in Westchester County. By some estimates the Mansion Tax impacts nearly a quarter of single-family home sales in Westchester.
Who pays the Mansion Tax in Westchester?
The Mansion Tax in Westchester is customarily paid by purchasers. Keep in mind that just about everything, including who pays the Mansion Tax, is negotiable in a Westchester real estate transaction. Nevertheless, don’t expect a seller to agree to pay the Mansion Tax unless you have a tremendous amount of leverage.
Sellers are extremely averse to paying the Mansion Tax on behalf of a buyer because it would not be tax deductible and therefore does allow the seller to reduce his or her capital gains taxes payable on the sale as is the case with other closing costs.
Under Section 1402-a, the Mansion Tax must be paid within 15 days of closing along with the standard New York State Transfer Tax which is paid by the seller.
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How to avoid the Westchester Mansion Tax
The easiest way to avoid the Mansion Tax when buying a home in Westchester is to work with a buyer’s agent who offers a broker commission rebate.
A buyer agent commission rebate is a rebate on the commission that a buyer’s agent receives from the seller for representing you on the purchase.
The rebate you receive can reduce or fully eliminate your Mansion Tax bill on the purchase. Moreover, rebates are generally considered to be non-taxable.
Broker commission rebates are legal in New York State according to Section 442 of the New York Real Property Law, Article 12-A.
Does the Westchester Mansion Tax apply to new build homes?
The Westchester Mansion Tax applies to both existing homes and new construction properties.
Keep in mind that buyer closing costs are typically higher for new construction to begin with.
This is because it’s customary for the purchaser to pay some closing costs which are traditionally covered by the seller, including transfer taxes and seller attorney fees.
Any seller closing costs paid by the seller are added to the purchase price on a newbuild home for the purposes of determining Mansion Tax applicability. This means a newbuild home may still incur the Mansion Tax if the purchase price is below $1 million.
For example, let’s say the sale price is $995,000. NYS Transfer Taxes are $3,980. This is added to the purchase of $995k, which brings us to $998,980. If you also pay the seller’s legal fees of $2,000, this brings the total consideration up to $1,000,980. Therefore, the Mansion Tax is payable on this transaction.
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Westchester Mansion Tax vs. NYC Mansion Tax
Westchester Mansion Tax rates are lower than NYC Mansion Tax rates for properties of $2 million or more. Both Westchester and NYC have the same Mansion Tax rate of 1% on purchases above $1 million and less than $2 million.
Prior to a legislative overhaul in 2019, the Mansion Tax rate in both NYC and Westchester was 1% across the board. However, this legislation created 8 separate tax brackets in NYC. The highest NYC Mansion Tax rate of 3.9% applies to purchases of $25 million or more.
The higher NYC Mansion Tax rates for purchases of $2 million or more are codified in Section 1402-b of New York Tax Law.
2019 tax law changes also included an increase in the NYS Transfer Tax rate for residential sales of $3 million or more and for commercial real estate transactions of $2 million or more. The tax rate for transactions above these thresholds was increased from 0.4% to 0.65%.
