New Jersey ‘Mansion Tax’ Changes Impose Higher Transaction Costs on Commercial and Residential Real Estate Sales

Recent revisions to New Jersey law increase the so-called “mansion tax” for sales in excess of $2 million and shift the tax payment obligation to the seller.

Governor Phil Murphy recently signed legislation making substantial revisions to New Jersey’s so-called mansion tax.[1] This legislation was introduced in the New Jersey Senate on June 23, quickly passed by both the senate and New Jersey General Assembly, and signed by the governor shortly thereafter on June 30, 2025. The legislation increases the amount of mansion tax imposed on certain transfers of real property and alters the party responsible for paying the tax.

WHAT THE LAW DOES

Prior to the recent amendments, the mansion tax was imposed upon the buyer/grantee of (1) certain classes of real property and (2) legal entities owning such real property when the consideration exchanged for the property or entity exceeded $1,000,000. It was imposed at a rate of 1% of the entire amount of consideration paid and levied in addition to New Jersey’s Real Estate Transfer Fee (RTF) and Controlling Interest Transfer Tax (CITT). For example, in a sale of residential real estate for consideration of $2,020,000, the buyer/grantee was obligated to pay $20,200 of mansion tax under prior law.[2]

The new legislation makes significant changes to the statute by increasing the mansion tax rate for transfers where consideration exceeds $2,000,000 and shifting the obligation for payment and recordkeeping onto the seller/grantor. As of July 10, 2025, the mansion tax rate tiers are as follows:

Consistent with prior law, the new tax rates are flat taxes that apply to the entire consideration paid—not just the amount of consideration within each rate tier. For example, in a sale of residential real estate for consideration of $2,020,000, the seller/grantor would be obligated to pay $40,400.00 under the new mansion tax law.[3]

Generally, the law changes apply to transactions entered into on or after July 10, 2025. However, the legislation does provide for a short transition window for agreements there were fully executed prior to July 10, 2025, so long as the deed is recorded on or before November 15, 2025 (the grace period). For any deeds recorded during the grace period, the mansion tax must be paid at the current rate, but a grantor/seller can obtain a refund of any mansion tax they paid in excess of the prior 1% rate, provided that they file a refund claim within a year of the recording of the deed.

IMPLICATIONS

Beyond the obvious financial impact of the rate increases, the new mansion tax legislation will likely have unintended consequences for the pricing and negotiation of real property sales.

For pricing, the imposition of the new rate tiers as a flat tax instead of a graduated tax results in substantially different burdens for minor price differences. For example, a property sold for $2,000,000 will incur mansion tax of $20,000, whereas a property sold for $2,020,000 will incur mansion tax of $40,400. In other words, a $20,000 price increase can result in a $20,000 tax increase. Consequently, we expect that there will be a sort of dead zone for sales priced just above each of the mansion tax tiers. This occurred with the single-tier mansion tax under the prior law and we expect the new law will exacerbate this market aberration.

The shifting of responsibility for the mansion tax from the buyer to the seller will likely impact the negotiation of property sales. Under the prior law, there was somewhat of a balance struck between buyers and seller—the buyer was responsible for the mansion tax and the seller was responsible for the RTF or CITT. The new law disrupts that balance by putting the entire transfer tax burden on the seller.

TAKEAWAYS

• Parties intending to enter into an agreement of sale involving real property and certain legal entity transactions will need to be mindful of the economic implications of pricing and the mansion tax.
• Parties will also need to be prepared to discuss responsibility for the mansion tax when negotiating the letter of intent or the draft agreement.
• Finally, the swift passage of this legislation serves as a reminder that while the parties cannot expect to directly address every contingency, the inclusion of language with respect to “accordance with statute” or the “laws of the location of the property” can have unanticipated economic impacts.