Governor Phil Murphy has approved changes to New Jersey’s real estate transfer fee, increasing the so-called “mansion tax” on high-value property sales as part of the state’s new budget.
Under the amended legislation, homes sold for less than $2 million will continue to be subject to a 1% tax. However, the rate rises significantly for higher-priced transactions. Sales between $2 million and $2.5 million will now be taxed at 2%, sales from $2.5 million to $3 million at 2.5%, and properties sold for more than $3 million will face a 3% transfer fee.
In a key shift, the responsibility for paying the tax will move from the buyer to the seller. The measure is set to take effect for property closings that occur after November 15.
The increase marks one of the most significant adjustments to New Jersey’s real estate taxation in recent years and is expected to generate new revenue by targeting luxury property sales.
Who Pays It, How to Avoid It
New Jersey imposes a mansion tax on real estate transactions that exceed $1 million. This 1% levy applies to residential and certain commercial properties, adding a significant cost for high-value buyers. The tax is typically paid by the purchaser at closing, though exemptions and legal strategies may help reduce or eliminate the obligation. Buyers looking to avoid or minimize the New Jersey mansion tax often explore exemptions for specific property types, ways to structure purchases that escape the tax or negotiations with sellers.
Understanding the NJ Mansion Tax
New Jersey introduced the mansion tax in 2004 as a way to generate revenue from high-value real estate transactions. The tax applies to residential and many commercial properties sold for more than $1 million. The tax is normally paid by buyers at closing at the rate of 1% of the purchase price. Unlike the state’s realty transfer fee, which applies to a broader range of transactions, the mansion tax specifically targets luxury sales.
The tax applies to single-family homes as well as small multi-family properties, including condos and co-ops, with fewer than four units. Commercial properties such as office buildings are also covered. Buyers must pay the tax directly to the county recording office at closing, and failure to do so can delay the recording of the deed.
Who Pays the NJ Mansion Tax?
While the legal obligation falls on the buyer, some sellers may agree to cover part or all of the tax as a negotiation tactic. This is especially likely in a buyer’s market. However, buyers should typically budget for this added tax as part of closing costs.
Sales involving government entities or qualified affordable housing programs may be exempt. Other property types not covered by the mansion tax include vacant land, farms with no residences, industrial properties, churches, schools and properties owned by charities.
Some types of transactions are also not covered by this tax. They include transfers between relatives, those resulting from bankruptcy, divorce or as stipulated in a will.
Thinking of Selling or Buying in New Jersey?
Navigating changing tax laws and complex closing costs doesn’t have to be stressful. The Meena Patel Group is here to guide you through every step of your real estate journey. From understanding the new mansion tax rules to negotiating the best possible outcome, our team has the expertise and local market knowledge to help you succeed.
Call us today at 201-677-8843 or email [email protected] to discuss how we can help you navigate the new mansion tax and your next real estate move.
Sources: Shore News Network | Smart Asset
