How much state or local revenue can be generated through an additional charge on luxury homes? A recent report by the Urban Institute examined estimated tax revenue that could be generated in eight states and the District of Columbia by levying such a surcharge on luxury homes.
For this research, Urban Institute used data from state property records to estimate the total value of luxury residential properties. The analysis was restricted to single-family homes and excluded luxury rentals and co-ops.
“In the U.S. only two states, New York, and New Jersey currently enforce transfer taxes on luxury home sales,” Urban Institute said in the research. Thus the analysis estimated the potential revenue generated from two types of taxes on high-value residential properties—a real estate transfer tax and a property tax surcharge. While the former would fall on the sales price at the point of transaction, the latter would be levied on the assessed property value, the research said.
The report, which compared the revenue generated at different value thresholds for the tax surcharge, revealed that California was likely to generate the largest total tax revenue by levying such taxes. However, Colorado had the highest property tax revenue per capita.
However, the report pointed out that the amount of revenue generated and the feasibility of imposing such taxes would depend on the tax laws and revenue limits or restrictions in each state. “Many of the examined states have limits in place; California and Colorado have some of the strictest,” the report said.
The analysis also revealed that the stock of high-priced luxury homes varied widely across states and therefore state policymakers should consider their individual housing markets when setting thresholds for such surcharges to ensure that the revenue generated met expectations.
California, home to high-growth cities like San Francisco, San Jose, and Los Angeles, generated the most revenue from implementing a property tax surcharge, the research revealed, followed by New York. Maine, Nevada, and the District of Columbia had the lowest expected revenues.
When it came to transfer tax, California again topped the list with the research revealing that the Golden State would generate the most revenue from such a tax, followed by Colorado, District of Columbia, Michigan, Massachusetts, Nevada, and Washington.