It's almost as if New York politicians are deliberately trying to crash NYC's housing market.
On Christmas Day, the New York Post reported that a bipartisan group of NYC lawmakers is pushing Albany to change state laws and close a loophole that extends tax breaks to homebuyers in gentrifying neighborhoods.
The "gentrification tax" law would require homebuyers to pay taxes at the market rate, rather than at the much-lower assessed value.
Presently, homebuyers across the five boroughs who buy multimillion dollar brownstones and other existing homes often pay less in taxes than those who buy more moderately priced homes.
Republican Staten Island City Council member Joe Borelli is spearheading the movement to end the tax loophole. He told the Post that New Yorkers are "just getting fed up" with the unfair treatment.
"My proposal would end the practice of charging more tax on $500k home on Staten Isl etc. than a $2m home in Park Slope," Borelli tweeted on Thursday. "This can be done Jan. 1."
Borelli also blamed Mayor de Blasio for creating the 'yuppie tax' loophole.
The Post calls it a gentrification tax or a ‘yuppie tax,’ but most NYers know it as the ‘de Blasio loophole.’— Joe Borelli (@JoeBorelliNYC) December 26, 2019
My proposal would end the practice of charging more tax on a $500k home on Staten Isl etc. than a $2m home in Park Slope. This can be done jan 1. https://t.co/SDCB4zFjLp
Borelli's coalition also includes Park Slope Democrat Brad Lander and Bay Ridge Democrat Justin Brannan, two other members of the city council, which is controlled by Democrats.
The NY Post breaks down the impact of the gentrification tax thusly: A buyer who snapped up a Clinton Hill brownstone for $3 million in 2017 only pays taxes on a fraction of the buying price, leaving the building's new owner with a tax bill of just $4,297 a year.
Meanwhile, the owner of a $500,000 Bergen Beach bungalow pays a nearly identical amount, even though the bungalow is worth roughly one-sixth of the brownstone.
The change to opaque state tax laws advocated by Borelli would raise the brownstone owner's annual tax bill by $1,600, while the owner of the bungalow would see no increase.
Of course, the changes would come with drawbacks: Back in April, New York State passed a revised 'mansion tax'. First passed in 1989 by New York Gov. Mario Cuomo, New York’s original mansion tax was a 1% tax on statewide sales of homes of $1 million or more. Under the original tax, if a house, co-op, or condo sold for $1.25 million, the buyer would have paid a tax of $12,500, in addition to whatever other taxes they would pay.
For fiscal year 2020, the statewide mansion tax will remain at 1% for property purchased for $1 million or more. For properties in NYC, however, the 'progressive' mansion tax will rise incrementally with purchase prices of $2 million or more, capping out at a total of 3.9% for properties sold at $25 million or above. Homes sold for $1 million+ outside of NYC but within New York state won't be affected by the progressive taxes.
Homebuyers in New York state (including NYC) will also need to factor in the Republican tax plan's rejection of the SALT deductions.
Borelli sent the proposed resolution to City Council Speaker Corey Johnson and state Assembly Speaker Carl Heastie earlier this month. Johnson spokeswoman Jennifer Fermino said the speaker is waiting for a preliminary report from a city property tax reform commission that he and Mayor de Blasio commissioned back in 2018.
With the new mansion tax, it's hardly surprising that Manhattan home sales plunged in Q3. Will we see more housing market pain in Q4 and the new year? Investors don't need a magic 8-ball to figure that one out.