Last month we saw the fear of rising closing costs lead to urgency for buyers in the luxury market looking to preserve large savings on mansion tax before the new regulations kicked in on July 1. Now that the deadline has passed, we’ll have to wait and see how these new regulations will affect the luxury and ultra luxury markets. Over the next few months, several factors like low interest rates, discounted pricing, and a hot rental market, could help the sales market.
New Limits on Up Front Rent and Security Deposits Landlords and tenants should both be aware of a new Act which just passed. The Act provides that no deposit or rent advance shall exceed the amount of one month’s rent under such lease. At lease signing, landlords may collect a security deposit of one month’s rent, the first month’s rent, and nothing more than that. Moreover, landlords may not accept additional security deposits from tenants who offer such. This will make it much more difficult for some people, like international tenants without US credit history, to rent an apartment.
Mansion Tax The New Progressive Mansion Tax Law which kicked in on July 1 breaks the mansion tax into eight tiers as defined below:
- $1M to $2M: 1%
- No Change from Current Mansion Tax
- $2M to $3M: 1.25%
- $3M to $5M: 1.50%
- $5M to $10M: 2.25%
- $10M to $15M: 3.25%
- $15M to $20M: 3.50%
- $20M to $25M: 3.75%
- $25M+: 3.90%
For reference, the new regulations will add about $425,000 in tax to a $17M sale, and $6,250 for a $2.5M sale. These are certainly large pills to swallow which will make purchasing more expensive for luxury buyers. Do however keep in mind that about 75% of sales in Manhattan are below the $2M mark, where the new regulation will not make any difference.
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