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.
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 country 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.
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
- 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 at The Matus Law Group to learn how we can help. (732) 281-0060