On Tuesday, July 1, Governor Phil Murphy signed into law Senate Bill S4666/Assembly Bill A5804 (collectively, the Bill), which impacts certain transfers of real property. The Bill amends the existing fees imposed on certain residential, agricultural, and commercial real property transfers, commonly referred to as the “mansion tax.” The Bill also amends the controlling interest transfer tax (CITT) imposed on transfers of interests of certain commercial properties. Specifically, the Bill shifts the burden of both the mansion tax and the CITT from the purchaser to the seller and increases tax rates for transfers of over $2 million.
Buyers and sellers of properties subject to the mansion tax or the CITT need to act fast, as the amendments do not apply to transfers with sales contracts executed before July 10, 2025, and for which the deeds are recorded (or controlling interests are transferred) before November 15, 2025.
Effects of the Bill on the Mansion Tax
The most significant changes imposed by the Bill are the imposition of the mansion tax on the seller of real property, as well as a new graduated tax rate for properties sold or transferred for consideration over $2 million.
Properties sold for the following consideration are taxed at the following rates, which are applied to the entire consideration amount:
The amended mansion tax does not replace other transfer fees currently imposed on a seller of real property, but continues to be assessed in addition to such fees.
The following property types continue to be subject to the mansion tax:
- Class 2 residential properties
- Class 3A farm properties with a building or structure intended for residential use
- Cooperative units, as defined by section 3 of P.L.1987, c.381
- Class 4A commercial properties
Effects of the Bill on the CITT
The changes to the CITT mirror those made to the mansion tax, including a new graduated tax rate and an imposition of the tax on the seller. The new CITT rate applies to any single transaction or series of related transactions involving the sale or transfer of a controlling interest in an entity that owns classified real property for consideration or equalized assessed value (as applicable) over $2 million.
The new fees for the transfer of controlling interest are as follows:
Income Tax Considerations
Given that the burden of the tax shifts from purchaser to seller, sellers should consider whether any current and prospective contracts that impose the burden of the tax on the purchaser may create taxable income for the seller.
*Samantha Magistre, a summer associate at McCarter & English not yet admitted to the bar, contributed to this alert.
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