Introduction
Governor Phil Murphy’s budget proposal for the 2026 fiscal year introduces significant changes to the supplemental portion of the New Jersey Realty Transfer Fee for residential real estate transactions exceeding $1 million, colloquially known as the “Mansion Tax.” These changes, if enacted, intend to address affordable housing development, homeless shelters, and eviction prevention programs through increased revenue.
Current New Jersey Realty Transfer Fee Structure
Since 2004, New Jersey has employed a dual-tiered Realty Transfer Fee structure. The base fee, traditionally paid by the seller, is calculated based on a sliding scale formula of the property's sale price. In addition to the base fee, there is a supplemental fee – the Mansion Tax – which currently stands at a flat 1% of a residential property’s sale price over $1 million. The Mansion Tax is typically paid by purchasers.
Proposed Changes
Governor Murphy’s proposed budget raises the Mansion Tax rate to 2% on sales exceeding $1 million and to 3% on sales exceeding $2 million. This escalation represents a substantial increase in closing costs of high-value residential properties.
What this Means
When originally enacted in 2004, the Mansion Tax was intended to only cover residential home sales. However, the Mansion Tax was eventually applied to commercial real estate transactions, where high property values generate substantial transfer fees. As of this writing, it is unclear whether the proposed changes will only affect residential property sales or if it will include commercial property sales. If Governor Murphy’s proposed changes are ultimately enacted and applied to the commercial real estate sector, the revised transfer fee structure would have a profound impact on closing costs, investment considerations, and development planning across the state of New Jersey.
Legislative Process and Further Negotiations
It is important to acknowledge that the Governor's budget proposal is subject to change during the legislative process. Negotiations between the Governor and State lawmakers may result in modifications to the proposed fee structure. With that in mind, parties involved in current or future real estate transactions in New Jersey, particularly for properties valued at over $1 million, should closely monitor the legislative developments.
If you have any questions, please contact James M. Maggio, Jr., Tyler J. Greenhill, or any member of Riker Danzig's Real Estate Group.
