While the introduction of a so-called mansion tax in Connecticut’s 2020-21 budget will set a significant precedent for future legislative sessions, real estate experts in Fairfield County, where many of the state’s priciest single-family homes are located, believe that trading volume will largely be unaffected by the new financial measures.
The Constitution State’s $43.3 billion budget, which cleared its legislature earlier this month but awaits the signature of Gov. Ned Lamont, adds a 2.25 percent tax on home sales in excess of $2.5 million. But unlike a mansion tax set to arrive in New York on July 1, the Connecticut tax only applies to home sellers moving out of state.
While the proposed levy increases the conveyance tax rate from 1.25 percent to 2.25 percent on home sales of more than $2.5 million, according to the Hartford Courant, it is separate from a 0.25 percent conveyance tax on home sales owed to all Connecticut cities and towns. The state’s new mansion tax is expected to generate $6.3 million in revenue beginning in 2021.
Marc Isaacs, a real estate lawyer with his own firm in Westport, and luxury residential broker Robin Kencel of Compass of Greenwich, said the potential new mansion tax should have little impact in the overall trading habits of high-end home sellers in Fairfield County. Isaacs and Kencel noted that an already softening luxury sales market in places like Greenwich, where price cuts have become common in recent years, is likely to minimize the impact of the new tax as the number of deals above $2.5 million have fallen.
“None of the buyers, or the sellers have been focused on [the proposed mansion tax],” said Kencel, a top luxury broker in New York City’s suburbs who recently listed a $26 million waterfront estate in Greenwich. “I am constantly revisiting my marketing and pricing plan for any listing because I’m conscious that we’re in a sensitive market period. But I’ve not had a single [client] focus on the 2020 mansion tax implementation as a reason to change any of their purchase or sales behavior.”
Kencel said that 207 properties across multiple asset classes sold for more than $2.5 million in Greenwich in 2018. Those trades accounted for 26 percent of the 776 overall sales in the Greenwich market that year, according to her analysis.
First quarter data provided by Douglas Elliman showed that the average sales price for luxury properties in Fairfield County dropped 23.5 percent year-over-year, from $2.6 million in early 2018 to $2 million in the first three months of this year. The Elliman report noted that Greenwich had the highest average sales price in Fairfield County during the first quarter, at $2.3 million.
Alexander Chingas of the Riverside Realty Group in Westport added that only 10 percent of single-family home sales in the town were over the $2.5 million threshold in 2018.
“Connecticut is still… a favorable tax alternative to the rest of the Tri-State area when all things are considered — income tax, sales tax and property tax,” Chingas said. “While people cringe to hear about new taxes, you have to look at the broader picture and how it fits with the overall puzzle. Given the fact that so many of our clients remain in state, they won’t be hit with that tax because it only affects those who leave.”
Chingas, Kencel and Isaacs said that buyers at or above the $2.5 million price point are far more likely to consider lifestyle — and overall deal structure — when considering a transaction, instead of Connecticut’s mansion tax.
The proposed measure looms as some Connecticut politicians push to end a $10,000 deduction cap on state and local taxes and New York prepares to implement a 4.15 percent tax on home sales worth $25 million or higher.