Santa Fe’s Mansion Tax Is in Limbo—That Gives Buyers and Sellers a Window of Opportunity (2024)

The city of Santa Fe is set to impose a mansion tax in 2024 on sales of residential properties that exceed $1 million, meaning there’s time for buyers and sellers to get ahead of the added cost.

Overwhelmingly supported by voters but being challenged in court, the tax would impose a 3% on the sale price of the home that’s over $1 million with the first $1 million being exempt; buyers are responsible for the total tax amount.

A property that sells for $1.2 million, for example, would be taxed at $6,000, the equivalent of 3% of $200,000. This mansion tax is meant to raise funds for affordable housing to benefit residents who don’t have the means to pay rent or take on a mortgage.

The tax legislation is a response to concerns over housing affordability amid surging mortgage rates, booming demand and rising prices for homes in Santa Fe, according to David Barker, the owner of the local real estate agency Barker Realty.

“Property values have more than doubled in the last four or five years,” he said.

According to Santa Fe city attorney, Erin McSherry, the tax is set to go into effect six months from the day that election results are certified. Currently, that projects to May 2024.

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Presuming a court eventually rules in favor of the tax legislation, luxury home sellers now have a window of opportunity to seize on strong demand in the city before the added cost affects buyer activity. However, many local real estate experts expect the Santa Fe market will get over the added tax fairly quickly.

“The people who want to invest in high-value properties have adequate resources, so a 3% tax is not going to materially change their minds if they’re set on a particular home,” said David Woodard, an associate broker in Santa Fe with Sotheby’s International Realty.

Woodard’s clients who have toyed with the idea of selling their properties at some point down the line aren’t hurrying to list immediately because of the impending tax, he said.

“Santa Fe has a shortage of high-end properties. Couple that with the strong demand, and the mansion tax doesn’t really matter from a larger perspective,” he said.

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A Lesson From Los Angeles

There are some Santa Fe sellers who might benefit from expediting their property sales before the mansion tax comes into play, said Chris Lim, a senior advisor and global brand ambassador for Christie’s International Real Estate. He used the mansion tax implemented in Los Angeles on April 1, 2023 as an example.

“A similar tax in the city of Los Angeles was levied on any real estate sale or transfer value at $5 million. The tax is a flat 4% of properties worth between $5 million to $10 million; above $10 million, it jumps to 5.5%,” he said.

Lim said that Santa Fe’s real estate market appears poised to mirror the trajectory seen in Los Angeles.

“The implementation of the mansion tax in L.A. led to significant ramifications in both commercial and residential real estate transactions, prompting a surge in buying and selling activities prior to its effective date” he said.

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In Los Angeles, multimillion-dollar homes sold rapidly ahead of the tax, with sellers employing price reductions, incentives, and bonuses, and “sellers rushed to finalize transactions,” he said.

Further, Lim said that following the tax going into effect, the luxury market came to a standstill and has remained stagnant ever since.

Drawing from this precedent, he suggested that homeowners in Santa Fe with properties valued at over $1 million who need to sell soon should consider doing so promptly.

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Sell Your Home Now but Only if It Makes Sense

Ricky Allen, anassociate broker and managing partner for the RCT team at Sotheby’s International Realty, said that homeowners should make the decision to sell their homes based on how fast they need to move their properties.

“I have some sellers who can’t afford to lower their prices and have to sell their home now,” Allen said. “On the other end of the spectrum, I have sellers who don’t have to sell and don’t have the sense of urgency to sell. The mansion tax shouldn’t be the tail that wags the dog.”

While the mansion tax may give buyers an increased urgency to close a home sale now, Allen said that he has yet to see this. Ultimately, an expected decrease in mortgage rates next year could have a positive effect that offsets the new tax.

“Don’t push forward with a decision because the impact of the mansion tax is uncertain,” he said. “If interest rates are lower next year, the market will see more buyers, which will ultimately have a bigger impact.”

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A Minimal Long-Term Effect

If the mansion tax goes into effect, it will likely create “some concern” among sellers and buyers in the short term; in the long term, however, it won’t upset the market, Barker said. He added that although buyers are supposed to pay the tax, it’s likely to be a negotiated item between buyers and sellers.

“Home prices have seen more than a 100% increase in recent years, and the market is still active even though it has slowed down from its peak,” he said. “A 3% tax to the closing cost for anything over $1 million is a small amount in comparison and will simply be the new cost of doing business.”

Barker advised sellers to hold off selling their homes unless they were planning to do so in the coming months anyways.

“Don’t be in a rush to sell if you’re not ready,” he said. “However, if you were likely going to sell in the near future, then list your home now and get ahead of the tax.”

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Santa Fe’s Mansion Tax Is in Limbo—That Gives Buyers and Sellers a Window of Opportunity (2024)
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