New Jersey's Fiscal Year 2026 budget introduces a major overhaul of the state's "Mansion Tax," as outlined in Assembly Bill 5804. The longstanding flat-rate system has been replaced by a graduated rate structure that increases the tax burden on high-end property sales and, significantly, shifts the payment obligation from buyers to sellers.

Prior Law

Under the previous structure, a 1% tax applied to residential and certain commercial property sales exceeding $1 million. This flat rate remained constant regardless of the final sale price and was typically paid by the buyer at closing.

New Law (Effective July 1, 2025)

Beginning July 1, 2025, the "Mansion Tax" becomes both graduated and seller-paid, marking a substantial policy shift. The new tiered rate schedule is as follows:

• 1% for consideration over $1,000,000 up to $2,000,000
• 2% for consideration over $2,000,000 up to $2,500,000
• 2.5% for consideration over $2,500,000 up to $3,000,000
• 3% for consideration over $3,000,000 up to $3,500,000
• 3.5% for consideration exceeding $3,500,000

Transition Relief

To preserve the current 1% rate, deeds with consideration over $2 million must be recorded by the county no later than July 9, 2025.

Additionally, for deeds recorded between July 10, 2025, and November 15, 2025, sellers may apply for a refund of the increased portion of the tax. To qualify:

• The contract of sale must be fully executed by July 9, 2025, and
• The refund application must be submitted to the New Jersey Division of Taxation within one year of the deed's recording date.

Sellers of high-value residential property in New Jersey should carefully consider these new tax implications when structuring transactions scheduled to close in late 2025 or beyond. Given the magnitude of the potential tax increase, early planning and carefully drafted real estate contracts will be essential.

If you have questions about how these changes may affect your transaction or need assistance with compliance or refund applications, please contact Nehmad Davis & Goldstein's Real Estate practice group.