The real estate sector has long been a source of revenue for both the city and state of New York. Transfer taxes, mortgage taxes, and mansion taxes have become par for the course in the New York City real estate market. Our clients have simply become accustomed to paying such taxes.

However, at some point, one has to wonder about the negative impact of increased taxation on what I humbly believe to be the premier real estate market not only in the city, state, and country but the world. New York City real estate has been one of the most historically stable asset classes attracting local, domestic, and international owners and investors. Whether it be a primary residence, pied-a-terre, investment apartment, or commercial investment property, consumer interest in this market sector is historically consistent. However, in recent years, despite a strong economy, there has been a noticeable softening of the market—especially the ultra-high end luxury residential and traditional commercial properties.

For many years now, there has been rampant talk and rumors about a potential increase of the transfer and mansion taxes. Until recently, such talk and rumors did not come to fruition. However, in recent months, numerous reports were coming out of Albany that the state sought to impose an aggressive pied-a-terre tax targeting second home owners and investors. It has become public knowledge that the state was looking at the real estate market as a vehicle to procure several hundred million dollars reportedly necessary to offset the growing costs of the area’s transit network. Many have suggested that the recent $238 million condominium unit purchase by a hedge fund investor at 220 Central Park South created a window of opportunity for state legislators to act. A perfect storm was created where a reportedly obvious need for transit funding was coupled with a spotlight of attention on the ultra-wealthy in real estate.

For numerous reasons including, but not limited to, strenuous objection from the real estate community as well as the Real Estate Board of New York’s lobbying efforts, this initial attempt at imposing a pied-a-terre tax failed. However, during annual budget negotiations, Governor Andrew Cuomo (D) and the New York State Legislature called an audible and devised a plan to enact and impose new transfer tax (typically paid by sellers) and mansion tax (typically paid by buyer) rates.

On April 1, 2019, it was announced that Governor Cuomo and the state legislature had adopted a budget for the fiscal year 2020 (April 2019 thru March 2020). As part of the approved budget, the state laid out an aggressive plan to increase taxes on real estate transfers and to impose congestion pricing charges to those reportedly traveling into or within the prime real estate sectors of Manhattan south of 60th Street. Details of congestion pricing to follow at a later date as they become clear.

With respect to increased real estate transfer taxes, the details are clear and will apply to most real estate transactions with contract dates on of after April 1, 2019, and that close after July 1, 2019. It is crucial to note that this tax increase does not apply to transactions that close before June 30, 2019. Let the race to close by June 30, 2019, begin!

For commercial real estate sales over $2 million, the transfer tax will increase from the existing 0.40 percent to 0.65 percent. For residential transactions (residential 1-3 family, condominium, and cooperative unit sales) over $2 million, the mansion tax increases based upon sales price all the way up to a staggering 3.9 percent for properties over $25 million. The mansion tax on residential transactions within the $1 million to $2 million range remains unchanged at 1 percent.

Below, please find a breakdown of the new mansion and transfer tax rates paid in residential transactions and resulting revenue.

Although the ultimate impact of these new taxes won’t be known for some time, it is safe to assume that this will not be positive for the already soft ultra-high end residential market. To highlight the monetary impact of this change, my client that purchased a $38 million townhouse a few months back (paying $380,000 in mansion taxes) would have to now pay $1,482,000 (+ $1,102,000) if he purchased the very same townhouse after July 1, 2019. This development will certainly result in further price negotiations and increased consumer hesitation. Only time will tell.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Michael J. Romer, Esq. is a partner at Romer Debbas LLP New York.