Brickbats And Bouquets For Mayor De Blasio’s Proposed “Mansion Tax”
A proposed transfer tax for properties selling for $2 million and above would target smaller apartments in NYC—not “mansions”.
Hold on to your brownstones! Mayor Bill de Blasio is proposing a “mansion tax” on homes that sell for over $2 million. The 2.5 percent transfer tax would take $25,000 from a $2 million property sale away from the seller and give it to the city. The latter plans to use it to fund affordable housing for senior citizens.
The proposal is being pushed in light of President Trump’s new tax breaks, which would favor high income earners. “The wealthiest among us have every reason to expect a major new tax break at the federal level given the proposal already put forward by President Trump and the Congress,” de Blasio said during a budget testimony in Albany on Monday. ”We think in light of the fact that the wealthiest will be receiving a substantial federal tax break that it’s time they pay their fair share in state and local taxes.”
The Office of Management and Budget projects that such a tax would raise $336 million in fiscal year 2018. The money would be used to fund a Section 8 type voucher-like program for 25,000 senior citizens—who would not be asked to pay more that 30 percent of their income on rent.
The proposal, though, has come under criticism from real estate professionals. The tax only takes into consideration sales over $2 million—not the money owed on a property. Also, $2 million in New York does not buy you a mansion. It could get you a brownstone in Crown Heights and a condo in downtown Brooklyn and Manhattan.
“With $2 million you can get a nice two-bedroom,” Joan Kagan, sales manager at real estate brokerage TripleMint told the Wall Street Journal. “When you think about a family with children who wants to stay here for a little bit of time, they’re the ones that are going to be affected by the tax.”
The Journal profiled an 887 square-foot apartment for sale in Manhattan, described as an “oversized studio” and listed for $2.25 million. Other critics of the tax say that more fees being added to the cost of doing real estate business in New York City would not only complicate things further and could possibly slow down sales.
“New York City has one of the highest transaction tax costs in the country. An additional tax like the one proposed will suppress sales activity and lead to lower tax revenue for the city,” said John H. Banks III, president of the Real Estate Board of New York. Alicia Glen, deputy mayor for housing and economic development is a supporter of the proposal, citing the hit affordable housing could take with a new republican government. “We have an obligation to fight tooth and nail to identify resources for our housing agenda,” she said.
Should it be imposed sellers will doubtless create several ways to get around paying it, which could tip over into fraud. Having a sales price of $1.99 million on the HUD settlement sheet with separate agreements outside could be one contentious and possibly illegal way to skirt the issue. Refinancing, and pulling money out of a property, when appraised above $2 million and then waiting a little while to sell below $2 million, could also be another way.
James Parrott, deputy director and chief economist of the Fiscal Policy Institute, agrees with de Blasio and feels his logic makes sense. “Given the likelihood of some reduction in federal housing funding, it makes sense to seek replacement revenue sources and the modest increase in the mansion tax the city proposes is a sensible alternative,” Parrott told DNAInfo.
While many professionals feel the mansion tax should start with homes priced way above $2 million, Alicia Glen pointed out to the Journal that just 8.5 percent of residential transactions across the five boroughs crossed the $2 million threshold in 2016. Given the exuberant price increases in recent years, it’s hard to believe it will stay that way for long.
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