In the last few years, home values have increased exponentially in New Jersey and across the nation. Now, if you are buying a home, you may suddenly find yourself concerned over our “mansion tax” that is applied to any property that is bought for over $1 million. While many homes have increased to the point of triggering this tax, for new buyers who are purchasing a relatively moderate property, this can be an unfortunate surprise.
If you are considering buying a home and are concerned you may be subject to the mansion tax, having a highly qualified New Jersey real estate attorney on your side is crucial. At The Matus Law Group, our attorneys are well-versed in the intricacies of the mansion tax and can help you navigate this complex issue. We understand that the prospect of an additional tax can be daunting, especially for first-time homebuyers. We are committed to providing personalized guidance and effective solutions to meet your needs. Contact us at (732) 785-4453 to schedule a consultation and let us assist you in making an informed decision for your future home.
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Purchasing a high-value home in New Jersey can come with hefty tax liabilities. Ensure you're not paying more than you need to.
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What is the New Jersey Mansion Tax?
When a property changes hands, a transfer fee is paid to the county where the property is located. The transfer fees are deducted from the seller’s proceeds at closing and paid to the county when the new deed to the buyer is recorded.
New Jersey imposes an additional fee of one percent of the sales price for homes with sales prices of $1 million or more, i.e. the “mansion tax.” The mansion tax also applies to certain commercial properties as well. The mansion tax was introduced in 2004 when home values were considerably less than they are now and $1 million home prices were much less commonplace. Unless otherwise agreed upon by the buyer and seller, the mansion tax is typically paid by the buyer at closing.
This tax is applicable to both Class 2 and Class 4A commercial properties, encompassing various types of real estate, such as residential properties (including single-family homes), office buildings, and conventional commercial properties.
The mansion tax is imposed on property deeds involving the following types of properties:
- Residential property: This category comprises residences for less than four families, including condominiums.
- Regular farm property: This category covers property used for agricultural or horticultural purposes, provided that the property includes a building or structure intended or suitable for residential use, such as a residential farmhouse.
- Cooperative units: This category includes properties owned and held by corporations or other legal entities where each shareholder or co-owner has a long-term exclusive lease or similar arrangement for a specific unit within the same building.
- Commercial property: This category includes any income-producing property, excluding vacant land, residential dwellings, farm properties, industrial properties, or multi-family apartment buildings.
If you’re looking for more information about the New Jersey mansion tax or if you have encountered this tax in the process of buying or selling a high-value property, seek the guidance from a knowledgeable New Jersey real estate attorney. At The Matus Law Group, our attorneys can assist you with your concerns about the mansion tax in New Jersey. With in-depth knowledge and experience in real estate matters, we provide personalized solutions to navigate the complexities of this tax law, ensuring a smooth transaction for your property. Contact us today to schedule a consultation.
| Property Type | Applicability of Mansion Tax |
|---|---|
| Residential Property | Applies to residences for less than four families, including condos. |
| Regular Farm Property | Applies to agricultural/horticultural property with a residential use. |
| Cooperative Units | Applies to properties owned by corporations with long-term leases. |
| Commercial Property | Applies to income-producing properties (excludes vacant land). |
How is the NJ Mansion Tax Calculated?
In New Jersey, the Mansion Tax is a state-imposed tax that buyers must pay when purchasing residential real estate priced over $1,000,000. The tax rate for this particular duty is set at 1% of the total sales price of the property. This means if you buy a home or any residential property in New Jersey for more than one million dollars, you are required to pay an additional 1% of the purchase price as the Mansion Tax.
The application of the Mansion Tax is broad, covering all deeds where the land conveyed falls under specific classifications according to the New Jersey Administrative Codes (N.J.A.C. 18:12-2.2). Essentially, this tax is applicable to a wide range of high-value residential transactions within the state, underscoring New Jersey’s approach to taxation on higher-end real estate.
For example, if a property is purchased for $1,500,000, the Mansion Tax would be calculated as 1% of $1,500,000, which amounts to $15,000. This tax is paid by the purchaser at the time of closing and is a critical consideration for anyone looking to buy high-end residential property in New Jersey. An experienced real estate attorney can help potential buyers understand this tax obligation, guiding them to budget appropriately and avoid surprises during the property acquisition process.
What Properties Aren’t Subject to the Mansion Tax?
Some properties are exempt from the mansion tax in NJ. These include
- Vacant land
- Farm property with no existing residence
- Farm property that qualifies for farmland assessments
- Industrial properties
- Apartment buildings with five or more units
- Cemeteries
- Schools
- Churches
- Properties owned by charitable organizations
Certain types of transfers can also be exempted from the mansion tax. These can include bankruptcies, transfers between family members, transfers in accordance with the terms of a will, transfers in accordance with a divorce decree, correction deeds, or properties sold for a consideration less than $100 if no mortgage exists.
Buyers Should Be Prepared
While $1 million properties are still of significant value, they are definitely more common than they were almost two decades ago in our current real estate market. Considering the real estate site zillow.com has reported that the median home price in New Jersey was $431,899, increasing in value by 16.4 percent in 2021 alone, $1 million dollar homes are more prevalent in the current landscape, and some buyers may be surprised to learn that they are subject to the mansion tax at closing.
As a buyer, it is important to understand whether the purchase of your new property will be subject to the mansion tax and what you can do about it. While the buyer typically pays the mansion tax, they may mitigate the cost by making provisions in the contract agreeing to share them or shift the responsibility to the seller. This may be harder to do in a seller’s market.
The Importance of Having a Real Estate Lawyer
While it is not required to have a real estate attorney when dealing with real estate transactions in New Jersey, having a skilled lawyer can help protect real estate buyers and sellers from the potential legal pitfalls of large financial decisions involved in such transactions.
Real estate attorneys can assist with closing procedures and property inspections as well as contracts, disclosures, ownership, and title issues. A lawyer is an invaluable partner that can help ensure fair transactions and legal compliance. Having one can also help limit future problems. A real estate attorney helps both parties understand their rights. A person’s need to hire a real estate lawyer can depend on their knowledge of the real estate laws and contract laws in New Jersey. It is also important to consider getting a lawyer especially if the client doesn’t have a lot of experience in buying or selling properties.
Hiring a realty attorney in the early stages of the transaction can help the client spot issues that might go unnoticed up until the closing. While agents are skilled in selling property and evaluating offers, as well as guiding buyers to their ideal home or investment, a skilled real estate attorney may be able to provide invaluable legal advice about potential issues in the transaction.
If you are the buyer of a property that is valued at more than $1 million, you may have options. Contact the experienced real estate attorneys of The Matus Law Group at (732) 785-4453 to learn how we can help.
