‘Mansion tax’ on pricey NYC real estate included in state budget

The tax will top out at 4.15 percent for homes of $25 million or more

The pied-à-terre tax is dead; long live the "progressive mansion tax."

As part of the 2020 budget that was agreed upon by the New York state Senate and Assembly, as well as Gov. Andrew Cuomo, a proposed tax on pricey second homes is no longer. In its place instead is a progressive tax on luxury real estate with a top rate of 4.15 percent, to be enacted for properties valued at $25 million or higher. That would be combined with a transfer tax, levied when a multi-million dollar home sells, according to the New York Times.

That's opposed to the proposed pied-à-terre tax, which would have levied an annual, graduated tax of up to four percent on second homes costing $5 million or more. It was projected that such a tax could generate at least $665 million in revenue for the city each year. According to Cuomo's office, the adopted "mansion tax" will generate $365 million each year, to be put straight into the dedicated "lockbox" for the MTA—the same one where funds generated by the new congestion pricing surcharges will go.

The pied-à-terre tax was originally proposed in 2014, but it gained attention this year after Ken Griffin's $238 million condo at 220 Central Park South finally closed, becoming the most expensive home ever sold in New York City—and the United States. A confluence of factors—the fact that Griffin may not use the property as his primary home; the staggeringly high price; and the ongoing affordable housing crisis in the city—triggered a heated response, with legislators, the City Council, and even Gov. Andrew Cuomo signaling their support for the tax.

But the real estate industry, including groups like the Real Estate Board of New York (REBNY) and individual developers, pushed back on the annual tax, arguing that it would depress real estate values and drive potential buyers away from the city. And the Citizens Budget Commission, an independent fiscal watchdog group, recently called the proposal "appealing but problematic" in a blog post, noting that it's "not a substitute for real property tax reform that increases equity." Thus, the so-called "progressive mansion tax."

In a statement, Hoylman said that he "consider[s] it a win that we're taxing some of the most valuable real estate in New York to help fix our subways, which was the original point of the pied-à-terre tax. These new progressive real estate taxes which include a 'mansion tax' and real-estate transfer tax on multimillion-dollar properties will raise up to $365 million a year for the benefit of everyday New Yorkers and help keep our economy moving."