There are a growing number of home buyers in New Jersey that are finding out, for the first time, when they get to the closing table, that they are buying a mansion. In case you didn’t know, New Jersey has been charging buyers of homes costing in excess of $1,000,000.00, what has become popularly referred to as, the “Mansion” tax.
Initially signed into law by the much-maligned former Governor James McGreevey in 2004, the “Mansion” tax charges buyers a 1% tax on the purchase of any home that has a purchase price in excess of $1,000,000.00. N.J.S.A. 46:15-7.2. Now, in 2004, that was applicable to a much more limited number of homes; however, in the intervening 19 years, home prices have skyrocketed, especially in the last two to three years, leading to an ever-increasing number of home buyers scratching their heads when scrutinizing the settlement statement at the closing table. When told by their attorney or settlement officer that the rather large charge (in excess of $10,000.00) is in fact a payment for the “Mansion” tax, the popular retort is, “I didn’t know I was buying a mansion.”
Now the key phrase in the law, when considering the “Mansion” tax is “in excess of.” So, we know that the “Mansion” tax does apply to home purchase that are over $1,000,000.00. We also know that it does not apply to home purchases that are under $1,000,000.00. But what a home purchase for $1,000,000.00? Well, that’s where the key phrase, “in excess of,” comes into play. Because of that key phrase, any home purchase for a price of $1,000,000.00 would not be subject to the “Mansion” tax.
As with most laws, there are exceptions to the application of the “Mansion” tax. Property that is classified as Class 3B qualified farm or Class 3A property with no building for residential use are exempt from this tax. N.J.S.A. 46:15-7.2. In addition, 501(c)(3) non-profit organizations are exempt (N.J.S.A. 46:15-7.2(b)(1)), and certain corporate merger or acquisition transfers (N.J.S.A. 46:15-7.2(b)(2)) are also exempt. Also, vacant land, cemeteries, schools, churches, industrial property, and apartment buildings with more than 5 units are all exempt from the “Mansion” tax.
If the “Mansion” tax is applicable to a real estate transfer, one thing to keep in mind is that the Deed will not be accepted by the County recording officer for recording unless an Affidavit of Consideration for Use by Buyer (RTF-1EE) is attached to the Deed. N.J.S.A. 46:15-7.2(d)(2). A copy of the form can be found HERE.
There may be some relief on the way, however, as there is presently a bill pending before the State of New Jersey Senate, S207, which aims to repeal the “Mansion” tax, as well as make other modifications to items such as the Realty Transfer Fee. But, before you get too excited, the same or similar version of this bill has been introduced in the Senate, and the Assembly, every two years since 2006 (A2478 in 2020; A1378/S2192 in 2018; A1218/S1090 in 2016; A389/S2089 in 2014; A1028 in 2012; A379 in 2010; A166/S2417 in 2008; and A2644 in 2006). So, while there is some effort, most recently by Senator Jon M. Bramnick, there doesn’t look like a repeal of the “Mansion” tax will become law anytime soon.
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