New Jersey Increases “Mansion Tax” and Controlling Interest Transfer Tax
On June 30, 2025, New Jersey’s Governor Phil Murphy signed the “Fiscal Year 2026 Appropriations Act” into law, setting forth a budget for New Jersey’s Fiscal Year 2026 totaling a record $58.78 billion. Accompanying the 2026 budget, amendments were made to the existing New Jersey Realty Transfer Fee (RTF) and to the New Jersey Controlling Interest Transfer Tax (CITT).
Realty Transfer Fee. The RTF is a tax imposed on the conveyance of title to real property in New Jersey, unless an exemption applies. Previously, on top of the standard RTF rates imposed, there was a supplemental 1% fee imposed on certain real estate transferred for consideration over $1,000,000. This supplemental fee, commonly known as the “Mansion Tax,” applies to all deeds where the land conveyed is classified as “Class 2” residential; “Class 3A” where the property is a farm (but only if the farmland contains a building or structure intended or suited for residential use); “Class 4A” commercial (other than industrial or apartment); and “Class 4C” cooperative units.
Brackets and Increased Rates. The new law increases the rate of the Mansion Tax, imposing the following rates on real estate transferred for the following amounts of consideration:
- 1% of total consideration if in excess of $1,000,000 but not in excess of $2,000,000
- 2% of total consideration if in excess of $2,000,000 but not in excess of $2,500,000
- 2.5% of total consideration if in excess of $2,500,000 but not in excess of $3,000,000
- 3% of total consideration if in excess of $3,000,000 but not in excess of $3,500,000
- 3.5% of total consideration if in excess of $3,500,000.
These are not true “graduated” rates. These rates apply to the entire amount of consideration. For example, if total consideration is $2,200,000, the Mansion Tax would be $44,000. Because the consideration paid for the property in excess of $2,000,000 but not in excess of $2,500,000 the 2% rate applies to the entire consideration of $2,200,000.
Effective Date and Grace Period. The increased rates apply to transfers made after July 10, 2025. The Division of Taxation has published Form RTF-1EE, Affidavit of Consideration for Graduated Percent Fee which sellers must annex to deeds submitted for recording on or after July 10, 2025 that are subject to the Mansion Tax. Any deed mailed with a United States Postal Service postmark dated on or before July 9, 2025 is to be treated as received on or before July 9, 2025 and is therefore subject only to the prior 1% fee.
The new law provides a “grace period” for real property transferred under a contract executed prior to July 10, 2025 provided the deed is recorded on or before November 15, 2025. Under the grace period the rate increase will not apply; instead the 1% rate will apply. However, the Mansion Tax, as computed under the new rates, must be paid when the deed is recorded. With respect to transfers falling under the “grace period,” the seller may request a refund for any amount of Mansion Tax paid in excess of 1% of the consideration by filing a claim with the Division of Taxation within one year following the recording date of the deed. For the seller to make this refund request, the Division requires the filing of a completed Form RTF-3, Claim for Refund; a copy of the deed; a complete copy of the fully executed contract of sale signed by all parties; the official, fully executed settlement statement from the transaction (HUD-1); and any additional documentation necessary to process the refund claim.
Tax Liability Shifted from Buyer to Seller. Additionally, before July 10, 2025, the obligation for the Mansion Tax fell on the buyer. Beginning on July 10, 2025, the obligation for the Mansion Tax is shifted to the seller. However, while the non-payment of the Mansion Tax constitutes a tax debt of the seller, in reality, a deed with a stated consideration in excess of $1 million will be recorded with payment of the RTF and associated Mansion Tax, regardless of which party pays the fee.
With this shift in tax liability from the buyer to the seller, it is the seller who has the right to make a claim for, and to receive from the Division, the refund of the Mansion Tax for deeds filed under the “grace period.” If, under a “grace period” agreement, the buyer paid the Mansion Tax, the buyer’s claim to any refund is a matter of contract law between seller and buyer. The Division of Taxation will not interpret contract provisions between private parties or offer legal advice on the effect of the law change on these private contracts.
Controlling Interest Transfer Tax. The CITT is a tax imposed on the transfer of a controlling (more than 50%) equity interest in an entity that owns a substantial interest in commercial real property that is classified as “Class 4A” commercial. The new law also brings significant updates to the CITT, aligning it with the revised rate structure of the Mansion Tax and changing the party responsible for paying the CITT from the buyer to the seller of a controlling equity interest. These changes to the CITT are also subject to a “grace period” and apply to transfers made after July 10, 2025. The increased graduated CITT rates do not apply (1) if the controlling interest is transferred on or before November 15, 2025, and (2) the transfer was under a contract or other binding agreement that was fully executed on or before July 10, 2025.
Additionally, under prior law, whether there was a controlling interest transfer was determined by looking at whether a buyer or a group of related buyers acquired more than a 50% interest in an entity. The shift of taxation from buyer to the seller of a controlling equity interest may have also changed the focus for determining whether there was a controlling interest transfer from buyer to seller. Look for guidance from the Division of Taxation about the application of the revised CITT to multi-seller transactions.