If two Sag Harbor houses sell one dollar apart, why would one buyer write a check to the town that is about $10,000 larger than the other's? The town line running through the village has nothing to do with it. The reason is how the Peconic Bay transfer tax treats the $2 million mark. Below that number the buyer gets a large exemption. Above it, every dollar of the price is taxed.
One Dollar, Roughly Ten Thousand More
In both the Town of Southampton and the Town of East Hampton, the buyer of improved residential property pays two Peconic Bay charges. One is the 2% Community Preservation Fund tax and the other is the 0.5% Community Housing Fund tax, for a combined 2.5%, as The East Hampton Star has described the arrangement.
The exemption is where the cliff comes from. Southampton Town's 2025 Community Preservation Fund financial statements explain that a 2023 local law raised the exemption on the entire town transfer tax from $250,000 to $400,000. The same notes say this exemption applies only to transfers of $2,000,000 or less, and that there is no exemption for amounts over $2,000,000. The state law behind the program, New York Tax Law §1449-ee, sets the same ceiling: the exemption applies only to residential conveyances where the consideration is two million dollars or less.
So the exemption doesn't phase out gradually. It is either fully there or completely gone. Here is how the Peconic tax works out at a few prices on an improved Sag Harbor property:
| Purchase price | Taxable amount | Peconic tax at 2.5% |
|---|---|---|
| $1,900,000 | $1,500,000 | $37,500 |
| $2,000,000 | $1,600,000 | $40,000 |
| $2,000,001 | $2,000,001 | about $50,000 |
| $2,100,000 | $2,100,000 | $52,500 |
These figures come from applying the published rates and exemption to each price. Moving from $2,000,000 to $2,000,001 raises the buyer's Peconic bill by about $10,000. Moving from $1,900,000 to $2,000,000, a $100,000 increase in price, raises it by only $2,500.
The State's Mansion Tax Sits on Top
The Peconic charges are one of several transfer costs on a Sag Harbor closing in this price range. The New York State Department of Taxation and Finance describes the state-level pieces:
- Peconic Bay CPF and CHF, 2.5% combined, paid by the buyer. A $400,000 exemption applies on improved property at $2,000,000 or less.
- New York State mansion tax, a flat 1%, paid by the buyer on residential conveyances of $1 million or more. Outside New York City there are no higher brackets.
- New York State real estate transfer tax, $2 per $500 of consideration, or 0.4%. It falls on the seller unless the parties contract otherwise.
The higher combined transfer tax rates you may have read about apply to New York City conveyances, not to Sag Harbor.
On a $2,000,000 purchase, the buyer's share of these taxes comes to $40,000 in Peconic tax plus $20,000 in mansion tax, or $60,000. At $2,000,001 the mansion tax hardly changes, but the Peconic tax goes to about $50,000, so the buyer's total is about $70,000. The seller's 0.4% state transfer tax is about $8,000 either way. The cliff affects only what the buyer pays.
A Price Concession Near the Line Counts Twice
That's why negotiations just above $2 million work differently from negotiations anywhere else in the market. Suppose a house is under discussion at $2,010,000. At that price the buyer owes $50,250 in Peconic tax. If the price comes down to $2,000,000, the Peconic tax falls to $40,000.
So a $10,000 price reduction saves the buyer about $20,350 in total: $10,000 off the price, $10,250 in Peconic tax, and $100 in mansion tax. The seller gives up $10,000 and saves about $40 in state transfer tax.
The effect gets weaker the farther the price is from the line. At $2,100,000 the gap to $2,000,000 is $100,000, and the Peconic savings stay fixed at a little over $10,000 plus 2.5% of the price difference. Within roughly a few tens of thousands of dollars above $2 million, though, each dollar taken off the price is worth more to the buyer than it costs the seller. That is how the rule is built. It doesn't mean any particular price is right for a particular property.
Vacant Land Has Its Own, Steeper Version
Lots and teardowns treated as unimproved land are subject to the same ceiling with a smaller exemption. The statute and Southampton's audited notes keep the unimproved-property exemption at $100,000, and it disappears above $2,000,000 just like the residential one.
On a $2,000,000 land purchase, the Peconic tax is 2.5% of $1,900,000, or $47,500. At $2,000,001 it's about $50,000. The jump is $2,500, much smaller than the residential cliff, because the exemption is smaller to begin with. Whether a property counts as improved or unimproved therefore affects the Peconic bill well before the price reaches $2 million.
The Town Line Decides Who Collects
Sag Harbor straddles the Towns of Southampton and East Hampton, so it seems natural to expect the transfer tax to differ by side. It doesn't. The audited 2025 statements for both towns show the same 2.5% combined rate, the same $400,000 improved and $100,000 unimproved exemptions, and the same $2,000,000 ceiling, all in effect for conveyances on or after April 1, 2023. Being inside the village doesn't change that either. The state authorizing legislation provides that property in a village is subject to the supplemental housing transfer tax whether or not the village participates in the town's housing program.
What the town line does determine is which town receives the money and decides how to spend it. The two funds are very different in size:
- Southampton's audited CPF transfer tax receipts for 2025 were $86,788,838.
- East Hampton's audited 2025 CPF receipts were $47,063,928, including co-op transfer receipts.
- East Hampton took in more than $11.7 million for its community housing fund in 2025, according to The East Hampton Star.
- Through July 2026, the Riverhead News-Review reported community housing fund receipts of nearly $58 million in Southampton and $32.18 million in East Hampton.
Each town runs its housing fund separately. The Star, citing Assemblyman Tommy John Schiavoni's release, reported that the towns may use the money for first-time homebuyer assistance of up to 50% of the purchase price, as well as for producing and rehabilitating community housing. The Peconic charge in the buyer's closing statement goes to Southampton or East Hampton depending on where the parcel sits. It shows up again later in that town's preservation purchases and housing programs.
The Exemption With a Moving Ceiling
There is a second threshold in Sag Harbor, and unlike the $2 million line, it changes over time. Under subsection 4 of §1449-ee, a primary residence bought by first-time homebuyers in Southampton or East Hampton is exempt from the real estate transfer tax altogether. To qualify, every purchaser has to be a first-time buyer. The price has to fall within 150% of the State of New York Mortgage Agency's non-target, one-family purchase price limit for Suffolk County. Household income has to fall within SONYMA's non-target, one- and two-person income limit. Both limits are the ones in effect on the contract date. The buyer must apply to the town on its form, and the town grants the exemption once it is satisfied the buyer qualifies.
East Hampton's first-time homebuyer exemption checklist, effective August 11, 2025, listed a purchase price limit of $1,883,880 and a household income limit of $197,880. It also required that the home be the buyer's primary residence, that the buyer not have owned a primary residence in the preceding three years, and that the buyer not own a vacation or investment home. Those dollar figures come from a checklist that is more than a year old. Because they track SONYMA limits, the numbers in force for an October 2026 contract may be different, and the town is where to confirm them.
For a qualifying buyer, this exemption works like a cliff too. Just under the ceiling, the whole 2.5% is waived. Just over it, the buyer is back under the standard $400,000 exemption.
Frequently Asked Questions
Does it matter whether a Sag Harbor property is on the Southampton or East Hampton side?
For the Peconic rate and exemptions, no. Both towns charge 2.5% combined and use the same $400,000 and $100,000 exemptions with the same $2,000,000 ceiling. The side does decide which town administers the payment and which first-time buyer application and checklist apply.
Is the Peconic tax going away or changing soon?
Both towns' CPF authority runs through December 31, 2050, an extension that voters approved in 2016. The research behind this post turned up no 2025 or 2026 action in either town to change the 0.5% housing rate or the $400,000 and $100,000 exemptions.
Who actually pays each tax at closing?
Southampton Town's Community Housing Fund FAQ describes the 0.5% fee as paid by the purchaser, similar to the existing CPF fee. Under the state's guidance, the buyer also pays the 1% mansion tax, and the seller pays the 0.4% state transfer tax unless the contract says otherwise. How a specific contract divides these costs, and what a specific closing will cost, is something to work out with a closing attorney.
At James R. McLauchlen Real Estate, our appraisal work starts from the same thing the $2 million line depends on: what a Sag Harbor property is really worth, not just where the price is set. If you're buying or selling near the threshold and want an appraiser's view of value before the contract is drafted, request a valuation and consultation with our principals.
This article is general information, not legal, tax or financial advice. Consult a qualified professional about your situation.
