Greenbaum Rowe Smith & Davis Newsletter

Mansion Tax Revised for Closings After February 1, 2005

by Thomas J. Denitzio, Jr.

 

The Governor signed legislation which became effective February 1, 2005 making the grantee tax enacted last year inapplicable to certain types of real property (P.L. 2005, ch 19). The tax imposed on the grantee (also known as the “Mansion Tax”) is 1% of the entire consideration if the consideration exceeds $1 million. The zone classification of the property sold is no longer relevant. After February 1, the grantee tax will be imposed only on the sale of the following properties:


  • Class 2 “residential” property (one to four family);

  • Class 3A “farm property (regular)” but only if the property includes a building or structure intended or suited for residential use (this would exclude farmland qualified as such under the Farmland Assessment Act);

  • Any other real property, regardless of class, that is effectively transferred to the same grantee in conjunction with any class 3A property described above; and

  • A cooperative unit as defined in N.J.S.A. 46:8D-3.


 

Excluded from the grantee tax are:


  • Class 1 property (vacant land); and

  • Class 4 property (commercial, industrial and special purpose properties and apartments designed for five families or more).


 

The new law also grants the right to a refund to anyone who paid the grantee tax under the old law after August 1, 2004, but would not have to pay the grantee tax if the closing occurred after February 1. The refund must be applied for by May 1, 2005. Application for the refund is made to the New Jersey Division of Taxation.