How Much Is the Mansion Tax on Long Island?

The Mansion Tax on Long Island is 1% of the purchase price. It applies to purchases of residential property of $1 million or more. The Mansion Tax is customarily paid by purchasers.

If you’re purchasing a home for $999,999, there is no Mansion Tax payable since the total consideration is less than $1 million. If your purchase price is $1,000,000, the Mansion Tax of 1% is applicable to the entire purchase price (totaling $10,000 in this example).

The Long Island Mansion Tax applies to all residential real property or interest in residential real property which includes condos, co-ops as well as one to three family houses. The Mansion Tax is not applicable to commercial properties.

The Long Island Mansion Tax is one of the largest buyer closing costs alongside 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tax imposed by New York State on sales or transfer of real estate under New York Tax Law Article 1402-a. It was originally enacted in 1989.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 Long Island.

How to avoid the Mansion Tax on Long Island

Who pays the Mansion Tax on Long Island?

Does the Long Island Mansion Tax apply to new construction?

Long Island Mansion Tax vs. NYC Mansion Tax

The easiest way to avoid the Mansion Tax when buying a home on Long Island is to work with a buyer’s agent who offers a buyer agent commission rebate.

The way a buyer agent commission rebate works is simple. Sellers customarily pay all real estate commissions, including the portion paid to the buyer’s agent. The commission on a deal is typically split equally between the listing agent and the buyer’s agent. If the total commission is 6%, both agents earn 3%.

In other words, your buyer’s agent will get paid 3% from the seller in exchange for representing you on the purchase.

Instead of keeping the entire 3%, a buyer’s agent who has agreed to offer you a buyer agent commission rebate will split a portion of this commission with you.

If, for example, your buyer’s agent agrees to a 2/3rds rebate and the buyer agent commission is 3%, you will receive a rebate of 2% of the purchase price. On a $1 million home, that’s worth $20,000 in savings. It will cover your $10,000 Mansion Tax bill and leave you with an extra $10,000 in savings.

If you’re buying a $5 million home, a 2/3rds rebate on a 3% buyer agent commission equates to savings of $100,000 on your purchase.

As you can see, a buyer rebate can amount to savings of tens of thousands of dollars and in some cases six figure savings.

In short, you can essentially eliminate the Mansion Tax associated with your purchase by receiving a buyer agent commission rebate.

A buyer agent commission rebate can either be issued in the form of a credit at closing or by way of a check post-closing.

The Long Island Mansion Tax is a buyer closing cost. Keep in mind that just about everything, including who pays the Mansion Tax, is negotiable in a Long Island real estate transaction.

Nevertheless, don’t expect a seller to agree to pay the Mansion Tax unless you have considerable leverage.

Sellers are averse to paying the Mansion Tax on behalf of a buyer because it is generally not tax deductible and therefore does allow the seller to reduce 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.

The Long Island Mansion Tax applies to both existing homes and the purchase of 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 your purchase price is $995,000. NYS Transfer Taxes are $3,980. This is added to the purchase of $995k, totaling $998,980. If you also cover $2,000 in seller legal fees, this brings the total consideration up to $1,000,980. Since this now exceeds the $1,000,000 threshold, you’d incur the Mansion Tax on this hypothetical purchase.

The Mansion Tax rate is 1% in both NYC and on Long Island for purchases below $2 million.

However, Mansion Tax rates are higher in NYC vs. Long Island for homes of $2 million or more. 

This is because the NYC Mansion Tax has several tax brackets based on purchase price. The highest NYC Mansion Tax rate of 3.9% applies to purchases of $25 million or more.