New Jersey’s Mansion Tax has changed dramatically over the past year, creating new financial considerations for buyers, sellers, developers, and property owners across the state. A recent New Jersey Tax Court decision clarified the guidance on classifications of mixed-use properties, affecting property owners regarding the Mansion Tax.
What is the New Jersey Mansion Tax?
In 2004, as a means to generate additional funds for the state, New Jersey introduced the Mansion Tax on high-value real estate transactions exceeding $1 million. The Mansion Tax is imposed on Class 2 residential properties (homes with one to four families), Class 4A commercial properties (income-producing real estate such as office buildings, retail spaces, shopping centers, restaurants, and theaters), and certain Class 3A farm properties with residential uses.
How Has the New Jersey Mansion Tax Changed?
Historically, the Mansion Tax imposed, onto buyers, a flat fee of 1% on the qualifying sales and/or transfers of real property with purchase prices in excess of $1 million. However, in a dramatic revision of the Mansion Tax, an amendment was passed and signed into effect as of July 10, 2025, which shifted the mansion tax obligations from buyer to seller. Additionally, instead of a flat fee of 1%, there is now a graduated fee schedule, with a 3.5% fee on all sales in excess of $3.5 million. The graduated scale is as follows:
| Value | Mansion Tax Rate |
| $1,000,000.01 – $2,000,000.00 | 1% |
| $2,000,000.01 – $2,500,000.00 | 2% |
| $2,500,000.01 – $3,000,000.00 | 2.5% |
| $3,000,000.01 – $3,500,000.00 | 3% |
| $3,500,000.01+ | 3.5% |
The values and mansion tax rates are determined by the consideration or equalized assessed value of the transaction.
Implications for Current and Future Transactions
The amendment allowed for a transition period for transactions executed prior to July 10, 2025, with a recorded deed by November 15, 2025. For those transactions, the Seller can obtain a refund for the excess of 1% paid, if applicable. Unfortunately for Sellers negotiating potential sales post-July 10, 2025, or for transactions that did not close until after November 15, 2025, the full new scale is in effect, even if unanticipated.
The Tax Court’s Recent Adoption of the Predominant Use Test Mitigates the Impact of the Amended Fee for Mixed-Use Property Owners
Mixed-use properties include two or more uses of the property, which could justify a classification under multiple classes under N.J.A.C. 18:12-2.2. On April 27, 2026, the Tax Court of New Jersey ruled in favor of the taxpayer in a decision providing clear guidance on the classifications of mixed-use properties. One Main St Edgewater, LLC v. Edgewater Borough, 34 N.J. Tax 1, 5, 20 (Tax 2026).
The “predominant use test is the appropriate standard for determining a property’s classification for local property tax assessment purposes, [and therefore,] the court adopts the predominant use test for resolution of these matters, [especially…] in the absence of further statutory guidance from the Legislature and/or the adoption of administrative regulations by the Director of the Division of Taxation (the Director) concerning mixed use properties.” Id. Under this framework, the court evaluates the use of the property as a whole, including factors such as:
- The percentage of the property devoted to each use
- The revenue generated by each use
- The overall function of the building
Per the framework above, the court found that the properties in dispute were predominantly for residential use. Id. The percentage of square feet for residential use was between 86% and 90%, and the majority of the income generated was from residential use between 87% and 90%. Id at 7. The properties’ retail uses only accounted for small portions of the use of the whole property. Id. Despite this, the properties were classified as 4A and subject to the Mansion Tax. Id. Therefore, the court reclassified the properties from 4A to 4C, which exempted the properties from the Mansion Tax in a subsequent sale.
The predominant use test creates new opportunities to challenge property classifications that may be improperly subject to the Mansion Tax. These disputes are especially common with mixed-use buildings. For example, a property with multiple residential apartments above a few retail units on the ground floor could be classified as Class 4A, “commercial property with income-producing real estate such as […] retail spaces.” In this scenario, though the predominant use and income generated is from residential use, the property would be subject to the Mansion Tax if sold for a price in excess of $1 million. Under One Main St Edgewater, LLC v. Edgewater Borough, the property would be reclassified as Class 4C “apartments designed for the use and enjoyment of five families or more,” and thus avoiding the Mansion Tax. One Main St Edgewater, LLC, 34 N.J. Tax at 20; N.J.A.C. 18:12-2.2. Results may vary depending on your particular facts and legal circumstances.
For owners of mixed-use properties, reviewing whether a property has been properly classified is more important now than ever.
“The Tax Court’s adoption of a predominant use analysis underscores the importance of carefully evaluating how a property is classified for Mansion Tax purposes,” said David Wolfe, Co-Managing Partner at Skoloff & Wolfe, P.C. “For owners of mixed-use properties, obtaining experienced legal guidance can be critical when seeking a reclassification, challenging the application of the tax, or pursuing a refund. Even relatively small differences in how a property is characterized can have significant financial consequences in a transaction.”
New Jersey Mansion Tax Appeal Considerations
Experienced legal counsel can play a critical role in assessing a property’s designation, challenging improper classifications, and identifying opportunities for relief under New Jersey tax law.
Skoloff & Wolfe, P.C. has extensive experience with property classification issues and Mansion Tax appeals, including successfully disputing property classifications and obtaining substantial tax refunds where the tax was improperly imposed or overpaid.* As disputes involving the New Jersey Mansion Tax continue to grow, property owners, developers, and sellers should carefully evaluate how their properties are classified and whether they may be exposed to unnecessary tax liability.
Skoloff & Wolfe, P.C., is well-versed in the area of property tax law, including Mansion Tax appeals. The Tax Department has litigated the value of virtually every type of commercial, industrial, and multi-family property. Our attorneys also frequently counsel clients regarding property tax exemption matters, long-term abatements, and PILOTs. Our clients include developers, management companies, financial institutions, REITs, hospitals, universities, religious institutions, private equity firms, and insurance companies.
*Results may vary depending on your particular facts and legal circumstances.
