Three Ways to Avoid the Mansion Tax
Some homebuyers have found creative loopholes around the mansion tax, but are they legal?


As if closing fees weren’t bad enough, some buyers also have to shoulder a mansion tax.
The so-called “mansion tax” is a one-time real estate transfer tax placed on high-end home sales at closing. The tax amount varies depending on your state or city, and the sale price of your home. For instance, while some buyers are forced to pay a 1% tax others could pay as much as 20%.
For example, In Los Angeles, California, some real estate brokers and home sellers are fed up with the tax designed to fund affordable housing and prevent homelessness. A year after implementing the tax:
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- Luxury home sales registered a sharp drop.
- Only $215 million was generated in revenue, far short of the projected $672 million.
- Homelessness appeared to worsen.
While the option to repeal Measure ULA won’t appear as a ballot measure this November, some would-be buyers are still trying to bypass the tax altogether. Here’s why it matters.
Can you avoid the mansion tax?
Taxes are the least exciting part of purchasing a new home, but is the mansion tax worth worrying about?
While some may be less than enthusiastic about the prospect of extra taxes, seven states and the District of Columbia have implemented the mansion tax as a revenue driver.
States and cities use the tax to fund schools, healthcare, roads, and affordable housing. For instance, in New York, homebuyers can expect to pay a mansion tax of 1% on properties worth over $1 million and 3.9% on homes valued at or over $25 million.
The transfer tax aims to improve New York’s subway and public transportation system, affordable housing, and other initiatives. There’s one caveat: the square footage of your would-be home doesn’t matter, so you could very well be saddled with a mansion tax even on a 1-bedroom apartment.
Since the mansion tax is relatively new, some homebuyers and sellers have learned to navigate its regulations to save or bypass the tax. Here are three ways some have done it:
1. Negotiate a lower sale price
Real estate is negotiable, especially when it comes to a luxury home purchase. The market isn’t as hot as it used to be, and with fewer buyers, there’s more room to sway a seller into lowering their asking price.
- Have an agent. Not only do they know the market, but they can also be an asset in negotiating a better price, concessions, or repairs.
- Have your home inspected. Getting the property inspected by a certified home inspector before purchase can help you identify any faults the home has – if any.
- Get a lawyer. A real estate lawyer will know your state or city's mansion tax inside and out. They can give you solid advice regarding the parameters of the tax and when it will kick in.
For example, in Washington, the state applies a 1.28% mansion tax on homes valued at or over $525,000. If you can negotiate the purchase price below that threshold, you should be able to avoid the mansion tax.
Is it legal?
Keep in mind that pricing the home sale at $524,999 may raise some alarm bells. Also, some sellers may try to sell some furniture or personal items in the home for say $1,000 or $2,000 to get to their desired asking price.
This method is not only unethical but could be illegal. That’s why it’s best to consult with a trusted real estate lawyer if you suspect your home could be within the range of a mansion tax, and have a certified real estate agent help guide you through the purchase process.
2. Split the property sale
Another way to avoid the mansion tax is by dividing the property sale. Law firm Ervin Cohen and Jessup outlined the strategy in a blog titled ‘Nine Ideas to Avoid the Effect of Measure ULA: The New Mansion Tax,’ in Los Angeles.
According to the proposal, if the home is owned by two separate tenants or a couple each partner can sell the property for a certain amount.
In the City of Angels, the 4% mansion tax is triggered for homes sold over $5.5 million. Say a couple wants to list a home for $5.5 million, but doesn’t want the buyer to deal with the tax.
- One partner could sell the property for half at $2.5 million in this example.
- Meanwhile, the other co-owner can sell for the remaining $2.5 million.
- By selling individually, the mansion tax wouldn’t apply.
Is it legal?
While some folks may have gotten away with this sale method in Los Angeles due to its particular regulations, other states may have more stringent rules.
If you’re dealing with co-owners of a property who would like to split a sale, it’s recommended to have a certified real estate broker on your side and a lawyer who can walk you through the contract terms before closing the deal.
3. Ask for a seller concession
You can also negotiate the payment terms of the mansion tax with the seller, and ask them to pay some or all of the tax through a concession. Seller concessions are contingent on market conditions and may not be on the table if it’s a seller’s market.
Popular seller concessions often include repairs, interest rate buydowns, a price reduction, or helping pay some closing costs and attorney fees.
Is it legal?
Seller concessions are legal, but the seller is limited on how much they can contribute to the home’s sale price, according to the National Association of Realtors (NAR). The amount of concessions will depend on your loan type and can range from 3% to 9%.
Bottom line: Don’t get creative without sound advice
Few states have implemented a mansion tax, and some buyers may be keen on exploring loopholes in the relatively new regulations. However, bypassing the mansion tax can be illegal under certain circumstances.
Keep in mind: tax avoidance refers to legal strategies you can use to reduce your taxes. Meanwhile, tax evasion points to illegal practices people use to reduce taxes. The IRS has also been ramping up efforts to target millionaire tax evaders in recent years, and penalties can be severe.
When negotiating a home purchase, it’s recommended that you consult with a lawyer and certified real estate agent. They can help you understand the regulations on your state’s mansion tax and potentially offer advice on how to get you the best financial outcome legally while buying your dream home.
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Gabriella Cruz-Martínez is a finance journalist with 8 years of experience covering consumer debt, economic policy, and tax.
Gabriella’s work has also appeared in Yahoo Finance, Money Magazine, The Hyde Park Herald, and the Journal Gazette & Times-Courier.
As a reporter and journalist, she enjoys writing stories that empower people from diverse backgrounds about their finances, no matter their stage in life.
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