Here’s why New Jersey’s $1 million ‘mansion tax’ should be reevaluated
Home prices have surged to record highs in New Jersey and across the nation over the last several years. And while the average homebuyer was once able to buy a modest starter home for a reasonable price, times have changed.
As of July, 21 New Jersey towns had starter homes worth $1 million or more, up from 15 in 2023 and 2 in 2019. If you’re looking to buy a home, you’re likely already grappling with today’s steep prices. But what if we told you that you may have to shell out even more money for a seemingly hidden New Jersey tax?
Unofficially referred to as the mansion tax — but formally called the “Additional fee on certain transfers of real property over $1 million” — this is a 1% fee on most residential and commercial sales of more than $1 million, paid by the property’s buyer at the time of closing. Several states, including New York and Connecticut, as well as cities like Los Angeles, have implemented similar fees as of 2024.
In New Jersey, former Gov. Jim McGreevey signed the mansion tax into law in 2004 to deter the spread of urban development on undeveloped land and to fund projects that would better impact the environment, according to a 2004 article from Chicago Tribune. The funds collected from these taxes are collected by a county recording officer and sent to the state treasurer, who deposits this money into New Jersey’s general fund.
Because this tax was put into place when home prices across the state were significantly lower than they are today, some say the Garden State should reevaluate its $1 million threshold.
“Now it’s becoming the average home that’s being hit with this tax,” said David Arabia, broker and owner of Corcoran Infinity Properties. “It’s generally not a millionaire’s tax or mansion tax anymore because your average home is a million dollars now. And for an average family income, it’s difficult.”
Arabia said he views this mansion tax as unfair and unnecessary for buyers overall, especially in the current state of our real estate market. With that, he said he does believe the threshold for this tax should be more than $1 million.
This is because homes selling for more than $1 million now in New Jersey aren’t necessarily mansions or luxury properties anymore, Arabia said.
“I don’t think there should be a tax at all, but I definitely think it should be raised to over $2 million. Entry-level homes that need renovations are now $1 million and most of the families that are buying these million dollar homes are two income families. You’re talking about working people,” he said. “New Jersey likes to tax you on everything, so by leaving the tax the way it is, it’s no longer a mansion or a millionaire’s tax. It’s just the tax.”
Similarly, Joshua Baris — owner of NJLux Real Estate, which is part of Coldwell Banker Realty’s Global Luxury Division — said he agrees that this threshold should be updated.
In addition to the fact that buying a home worth $1 million is more common than it was 20 years ago, he said its just another fee that’s going to deter buyers from entering the market.
“Buyers are now responsible for paying their buyers’ agent commission, per the new NAR settlement. In my opinion, buyers are already not happy about paying an extra $10,000 or more for a million dollar home, but now they’re also getting stuck paying the buyer’s agent commission,” he said. “It’s becoming more and more costly for buyers to purchase homes.”
How North Jersey home prices have changed since 2004
The average home sale price in every North Jersey county increased by more than 50% between 2004 and 2023, according to state real estate data released each year.
And as of the end of August 2024, the median listing price was $799,000 in Bergen County; $525,000 in Passaic County; $699,000 in Morris County; $580,000 in Essex County; $435,000 in Sussex County; and $661,500 in Hudson County, according to data from Realtor.com.
This significant change in home prices over the last 20 years is also reflected through current homes for sale in North Jersey. For example, a five-bedroom, three-bathroom home on Manor Road in Livingston is listed for $1.199 million, but had previously sold in 2004 for $365,000.
Similarly, another home with five bedrooms and three bathrooms on Mountain Avenue in Wyckoff is listed for $1.16 million, but was sold in 2004 for $785,000. And listed for $1.099 million, a five-bedroom, five-bathroom home on Totowa Road in Totowa sold for $695,000 in 2005.
“The house that I bought in Hoboken back in 1996 I could never afford to buy now because not only are home prices and the property taxes so high, that mansion tax would add another $30,000 or whatever it may have been,” said Sharon Shahinian, an agent with Brown Harris Stevens.
Both the amenities included and the quality of homes selling for more than $1 million in today’s market have seemed to change too as home prices have increased.
Though not every home priced this way today has them, Shahinian said that things like new renovations, central heating and air conditioning, top-of-the-line appliances and high-quality materials like marble and granite have continued to be common features in homes selling for over $1 million.
“Now, they’re also doing other things like spas and big master suites and spacious walk-in closets, so people continue to elevate these properties,” she said. “And for new construction, there’s all the bells and whistles, which are things like kids playrooms, swimming pools, exercise rooms, and all of those things are adding to what one could have gotten for a million back in the day.”
But for homes today worth more than $1 million that don’t necessarily have these extravagant amenities, Shahinian said factors like square footage are driving up the price of average homes. This also applies to things like the number of bedrooms and bathrooms, the amount of backyard space and the overall size of a property’s lot.
Baris said one way to determine a new guideline for this tax would be by comparing how many homes sold for over a million dollars in 2004, versus how many homes sold for over a million dollars in 2023, as well as see how the median home price has changed during this time.
Another possibility, he said, would be changing the eligibility of this tax to be for home sales over a certain amount for individuals who make a certain annual income.
NorthJersey.com reached out to the office of Gov. Phil Murphy to see if a reevaluation of this mansion tax has ever been considered, and was referred to the New Jersey State Legislature.
“A search of pending bills in the current 2024/2025 session using the key words ‘realty transfer’ returns several pieces of pending legislation regarding this topic,” said the Legislative Information and Bill Room at the Office of Legislative Services in a response. “We can suggest contacting the Legislators who are Primary Sponsors of those bills to speak with them about this issue by contacting their district offices.”
Bill A200 — originally introduced in 2008 — is aimed at eliminating the 1% fee on certain commercial real estate transactions of $1 million or more. This bill was reintroduced this past January, sponsored by Assemblyman Michael Inganamort and Assemblywoman Dawn Fantasia.
For residential real estate, Bill A790 would terminate the 1% fee on purchases or residential property for more than $1 million. This bill was initially introduced in 2004, but was reintroduced this past January by sponsors Assemblyman Gregory P. McGuckin and Assemblyman Paul Kanitra.
NorthJersey.com reached out to the office of New Jersey’s 10th congressional district for comment from McGuckin or Kanitra, but did not receive a response.
“It’s a burden on people buying homes, and it definitely should be raised,” Arabia said. “To have it at such a low threshold for this state and this part of the country, it’s an average home. It’s the salary of two school teachers, or a police officer and a nurse. You’re not talking about the CEO of a company.”
Maddie McGay is the real estate reporter for NorthJersey.com and The Record, covering all things worth celebrating about living in North Jersey. Find her on , on , and sign up for her newsletter. Do you have a tip, trend or terrific house she should know about? Email her at MMcGay@gannett.com.…Read more by , Daily Record
