Closing costs for NYC home buyers are some of the highest in the United States. One of the largest and most controversial NYC buyer closing costs is the NYC mansion tax, which is a 1% levy on homes priced on or above $1 million customarily paid by the buyer.
The New York mansion tax was originally imposed in 1989, and it has never been adjusted for inflation. As a result, the mansion tax often applies to the purchase of moderately sized apartments in NYC which are most certainly not considered to be ‘mansions.’
Fortunately, there are three ways you can avoid paying the NYC mansion tax when buying property in New York City:
1. You can offset the mansion tax by requesting an NYC buyer broker commission rebate
The easiest way to avoid the mansion tax when buying a property in NYC is to request a buyer broker commission rebate from your buyer’s agent. The typical buyer agent commission rebate on a purchase in NYC can save you $20,000 or more on your purchase, which can fully offset the mansion tax bill which is payable on your purchase.
Requesting a buyer agent commission rebate in NYC is an automatic way to save money on your purchase. Real estate commission rebates work in New York City because sellers usually pay the same total commission regardless of whether or not an NYC buyer’s agent is involved in the deal. As a result, the cost of a buyer’s agent is already built into the sales price even if you don’t elect to have a buyer’s broker represent you on the purchase.
By representing you on the purchase, a buyer’s agent is able to collect half of the total 6% average NYC real estate commission which would otherwise go to the listing agent. Your buyer’s agent is then able to share a portion of this commission with you at closing in the form of an NYC buyer broker commission rebate.
2. Ask the seller to pay the mansion tax
Although the NYC mansion tax is typically paid by the buyer, just about everything is negotiable in a New York City real estate deal. You may be able to ask the seller to offer a closing credit to cover the mansion tax during the course of the negotiation.
It’s important to keep in mind that a seller won’t typically agree to pay your NYC mansion tax bill in a competitive bidding situation where there are multiple bidders. To entice the seller to offer a closing credit, you need to either be targeting a listing which is having trouble selling or negotiating with a highly motivated seller.
If you are submitting a strong all-cash or non-contingent offer, you may be able to entice the seller to help cover part or all of your NYC mansion tax bill. It’s important to keep in mind that a seller is not able to deduct any amount of the mansion tax he or she pays on behalf of the buyer, so there must be a compelling reason for the seller to offer you a closing credit.
3. Offer to purchase the seller’s furniture
The mansion tax is not applicable to a portion of the purchase price associated with any personal property such as furniture, fixtures and art. Therefore, you may be able to avoid paying mansion tax if you legitimately purchase personal property from the seller as part of the transaction.
Keep in mind that if your purchase includes furniture or other personal property from the seller, you will be required to declare and pay sales tax on these items.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
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