A luxury property tax, often called a mansion tax, is a one-time surcharge that some states and cities impose on real estate sales priced above a set dollar threshold. It’s collected at closing, on top of ordinary recording and transfer fees, and the rules, rates, and responsible party depend entirely on where the property sits. Seven states plus the District of Columbia currently impose one, with thresholds starting as low as $1 million and rates reaching 5.5% on the priciest sales.
Because these taxes are creatures of state and local law, there’s no federal version and no single rulebook. If you’re buying or selling a high-value home, the first question to answer is whether your jurisdiction has one at all, and the second is what price triggers it.
Where Luxury Property Taxes Apply
Seven states impose elevated transfer tax rates on high-value real estate: Connecticut, Hawaii, New Jersey, New York, Vermont, Washington, and the District of Columbia. Several major cities layer their own surcharges on top of the state rate, which can push the combined bill considerably higher.
New York
New York’s statewide mansion tax adds 1% to any residential sale of $1 million or more, and the buyer pays it. Within New York City, a supplemental tax kicks in at $2 million with incremental rates from 0.25% to 2.9% depending on price, and an additional base tax applies to residential sales of $3 million or more. A $4 million Manhattan apartment can easily see six figures in mansion taxes stacked on top of the city’s standard transfer taxes.
Los Angeles
Los Angeles voters approved Measure ULA in November 2022. As of July 2025, the inflation-adjusted thresholds impose a 4% tax on sales above $5.3 million and a 5.5% tax on sales at or above $10.6 million. These rates sit on top of the city’s existing base transfer tax and fund affordable housing and homelessness prevention programs.
Connecticut, Washington, and New Jersey
Connecticut uses a progressive structure: the standard 0.75% conveyance tax rises to 1.25% on the portion of a residential sale above $800,000, and to 2.25% on the portion above $2.5 million. Washington State’s real estate excise tax steps up in brackets from 1.10% on the first $525,000 to 3.00% on any amount above roughly $3 million. New Jersey recently restructured its mansion tax into a “Graduated Percent Fee” on sellers, starting at 1% on sales over $1 million and climbing to 3.5% on sales above $3.5 million.
One boundary worth naming: a few jurisdictions have discussed annual surcharges on high-value homes that sit vacant or serve as second properties, but those are rare. Vermont taxes transfers of non-primary residences at a higher rate, which achieves a similar effect through the transfer mechanism. If you’re researching this because you’re closing on a home, you’re almost certainly dealing with a one-time charge, not a recurring bill.
How the Tax Is Calculated
The math differs by jurisdiction, and the structure can shift the bill by tens of thousands of dollars.
Flat rate on the full price. New York’s statewide 1% mansion tax applies to the entire sale price once the $1 million threshold is crossed. A home selling for $1,050,000 owes 1% on all $1,050,000, not just the $50,000 above the threshold.
Progressive brackets. Connecticut and Washington tax portions of the sale price at increasing rates, similar to federal income tax brackets. Only the dollars within each bracket are taxed at that bracket’s rate, so crossing into a higher tier doesn’t retroactively raise the rate on the lower portion.
Flat rate with tiered thresholds. New Jersey’s Graduated Percent Fee applies its rate to the total sale price, but the rate itself increases as the price crosses higher thresholds. A $2.1 million sale triggers a 2% fee on the entire $2.1 million.
The structure matters most at the edges. In a progressive system like Connecticut’s, a sale at $810,000 costs barely more in mansion tax than one at $799,000. In a flat-rate system like New York’s, crossing the $1 million line creates a sudden $10,000 obligation that didn’t exist at $999,999. Buyers and sellers sometimes negotiate to land just below a threshold for exactly this reason.
Who Pays: Buyer or Seller
There’s no universal rule. Each statute names the responsible party. In New York, the buyer pays. In New Jersey, the Graduated Percent Fee falls entirely on the seller. In Los Angeles, Measure ULA is technically owed by the seller as part of the documentary transfer tax, though parties can negotiate a different split in the purchase agreement. Washington’s excise tax is the seller’s responsibility unless the contract says otherwise.
Whatever the statute says, the economic burden often shifts through price negotiation. A seller facing a large transfer tax may raise the asking price to offset it. In competitive markets, buyers may absorb the tax to sweeten an offer. Model the tax into your numbers early; the legal obligation and the economic reality don’t always match.
Common Exemptions
Most jurisdictions exempt certain transfers even when the price exceeds the threshold. The specifics vary, but several categories recur:
- Bona fide gifts, where no money changes hands.
- Transfers into an LLC or trust you control, where the beneficial ownership doesn’t actually change.
- Conveyances to federal, state, or local government entities, and often to qualifying conservation or historic preservation nonprofits.
- Properties conveyed through bankruptcy proceedings or tax sales.
- Supplemental deeds that correct errors or update a prior transfer without additional payment.
Exemptions won’t apply automatically. You’ll need to document the basis on the transfer tax return and, in most cases, provide supporting paperwork at closing. Getting this wrong can delay deed recording and create liability for the full tax plus penalties.
Federal Income Tax Treatment
Mansion taxes are not deductible on your federal income tax return as real estate taxes. The IRS lists transfer taxes as a non-deductible item for homeowners.1Internal Revenue Service. Publication 530, Tax Information for Homeowners
The tax does reduce your eventual capital gains bill. If you pay it as the buyer, the amount folds into your property’s cost basis, which reduces the taxable gain when you eventually sell.2Internal Revenue Service. Publication 551, Basis of Assets If you pay it as the seller, you can treat it as a selling expense, which similarly reduces gain.3Internal Revenue Service. Publication 523, Selling Your Home
The basis or expense adjustment softens the blow but doesn’t come close to recovering the full cost. Treat the mansion tax as a real cost of the transaction, not something you’ll get back later.
Paying at Closing
Mansion taxes are due at closing, and the deed usually can’t be recorded until the tax is paid. The county recorder’s office or equivalent local agency handles the filing, and most require a completed transfer tax return along with payment before processing.
The forms vary by jurisdiction, but the information is consistent: sale price, legal description and parcel number, identities of buyer and seller, and any claimed exemptions. Most of this comes straight from the closing disclosure and deed, so a title agent or real estate attorney typically prepares the return as part of the closing package. Many county offices accept electronic filings, but payment usually needs to arrive as a wire transfer or certified check rather than a personal check or credit card.
In high-value transactions, the tax can be large enough to require advance wire arrangements. Last-minute scrambling to fund a six-figure payment can delay or derail the closing.
What Happens If the Tax Is Underpaid
Because the tax is almost always collected at closing as a condition of recording, outright nonpayment is rare. The more realistic risk is underpayment, where an audit later determines that the reported sale price was too low or that an exemption was improperly claimed.
When that happens, the jurisdiction assesses the unpaid tax plus penalties and interest. Some impose a flat percentage surcharge; others charge monthly interest that compounds until the balance is resolved. In many jurisdictions, the unpaid tax becomes a lien against the property, meaning it must be satisfied before you can sell or refinance. Left unresolved long enough, a tax lien can ultimately lead to a forced sale.
If the tax applies to your transaction, the closing attorney or title company should calculate the exact amount owed based on the final sale price and handle submission. The cost of getting it wrong almost always exceeds the cost of professional help.