Effective July 1, 2026, New York City is enacting a surcharge on high-value, non-primary residences within New York City as part of Governor Kathy Hochul’s budget. The pied-a-terre tax, as it is commonly referred to, affects one, two and three family dwellings exceeding a specified value (see below) and are not used as a primary residence by the owner or tenant. The state expects 13,000 properties to be subject to the pied-a-terre tax and estimates that the tax will raise hundreds of millions of dollars in additional real estate tax revenue.
The tax will be implemented in two phases.
While the tax rates and thresholds vary by phase, determining whether a property is subject to the tax ultimately depends on how the property is valued.
The assessment of a property is determined by the New York City Department of Finance (DOF). Currently, co-ops and condos are assessed based on the potential income that the property can derive, which causes them to be undervalued as compared to what they may sell for on the open market. The phased tax system that has been enacted is meant to counteract this undervalued market, and by 2028, when Phase 2 rolls out, the DOF expects to use a comparable sales method, which should correct the current undervalued system, and see a reduction in the tax rate as such.
New York City has allowed for certain exemptions from the tax for New York residents and potentially non-residents. First, if the residence is a taxpayer’s primary residence for a majority of the year, the property is not subject to the tax. If a nonresident taxpayer’s family members, including spouse, children, siblings, parents, grandparents or grandchildren, occupy the residence as their primary residence, the tax does not apply. Any property that is being rented with a term of one-year and occupied as a primary residence by the lessee is exempt from the tax. Lastly, any new construction properties waiting for a certificate of occupancy are exempt from the pied-a-terre tax.
Any taxpayers looking for a secondary residence in New York City or looking to buy an investment property in the City should be aware of this new pied-a-terre tax. While exemptions do exist for primary residences and certain other situations, taxpayers should be thoughtful when considering purchasing properties worth more than the stated value thresholds in New York City. Taxpayers should continue to monitor guidance from the DOF and evaluate strategies as Phase 2 approaches in 2028.
If you own or are considering purchasing a qualifying New York City property, contact a Withum professional to discuss how the new pied-à-terre tax may affect your tax planning and investment strategy.
For more information on this topic, please contact a member of our team.
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