Beginning July 1, 2026, New York City is imposing a property tax surcharge on New York City residential properties that do not serve as primary residences. The new surcharge covers luxury second homes (known as “pieds-a-terre”) and investment properties which meet certain value thresholds.
The rationale for the tax is to ensure that individuals that own luxury homes and who enjoy the benefits of New York’s unique real estate market —but do not live in the city or pay city income tax—are still contributing towards the funding of essential services, like policing. Property owners should note that the surcharge is in addition to existing property tax obligations.
For fiscal years 2026 through June 2028 (“Phase One”), the surcharge will apply to residential property which is not a primary residence, and which meets the following Phase One value thresholds:
Condo and Co-op (i.e., Class 2 property) rates are higher than Class 1 properties as a result of the methodology that New York City uses to value Condos and Co-ops for property tax purposes, which leads to valuations that are well below fair market value.
Beginning on July 1, 2028, “Phase Two” becomes effective, and all covered properties will be subject to the three thresholds and corresponding tax rates that were applicable to Class 1 properties in Phase One. This is because New York City is expected to update its valuation methodology for Class 2 properties to fair market value.
This new property surcharge applies only to residential property located in New York City which is not a primary residence. The term “primary residence” is defined as the use of a covered property as a main home for more than half of the calendar year by either the “covered owner” or an immediate family member (i.e., a spouse, child, sibling, parent, grandparent, or grandchild). A property can also be considered a primary residence if it is rented by an individual lessee or sublessee who occupies the property under a bona fide, arms-length lease agreement with a term of at least one year.
Whether or not a property is a primary residence will be based on the owner’s use of the property as of January 5th of the preceding fiscal year. Therefore, the status for the period starting July 1, 2026, will be based upon the owner’s taxable status as of January 5, 2026.
In addition to a natural person who holds title to a covered property, the statute has a look-through approach to ownership, which expands the definition of “covered owner” to include beneficial owners of trusts as well as majority owners of partnerships, corporations, or LLCs.
The New York City Department of Finance will make a status determination based on data available to it and will send a notice to owners before August 30, 2026. Owners can then protest the determination using evidence such as tax filings or other documentation to establish whether anyone actually lives at the residence.
It is up to the property owner to prove that the New York City residential property is their primary residence. The new law permits the use of a New York State tax return for a homeowner to show a permanent home address, School Tax Relief exemption (STAR), or homeowner tax rebate credit. Alternatively, the homeowner can show an arms-length lease of one year or more.
If the owner wishes to protest a determination, a review may be sought before the Tax Commission. The owner has only 30 days from the initial determination to timely file an appeal.
If a residence is determined to be a pied-a-terre, the Department of Finance will also have the responsibility to collect and administer the pied-a-terre surcharge. The surcharge will be added to the property’s statement of account. In the case of Co-ops, the surcharge will be added to the Co-op’s property account and collected by the Co-op corporation from tenant-shareholders who are required to pay the surcharge.
Unlike regular New York City property tax assessments, the surcharge will not be reduced by regular New York City property tax abatements, exemptions, and credits that may be available to the homeowner. Assessments imposed for the 2026-2027 fiscal year will be due on January 1, 2027.
The surcharge does not apply to vacant land, commercial property, newly built properties that have not received their certificate of occupancy yet, or Condo and Co-op units being held by the sponsors. The pied-a-terre tax currently expires on June 30, 2031, but may well be extended if it is a good revenue raiser and straightforward to administer.
It should be noted with caution that the statute confers broad administrative discretion upon the Department of Finance. While the statute identifies one relevancy factor to be whether a property was occupied in the aggregate for a majority of days during a calendar year by a covered owner, the forthcoming regulations may discuss a half-dozen additional factors to be taken into account, as well as clarifying other parts of the new statute.
Owners of high-value New York City real estate should therefore consult with trusted tax counsel to evaluate how the new surcharge may be imposed or avoided. This is particularly relevant because New York City income tax residency concepts may also interplay with the surcharge concept of residency.
If you have any further questions regarding the NYC pied-a-terre tax or other residency issues, please contact Alvan L. Bobrow (abobrow@bartonesq.com) and Ian Shane (ishane@bartonesq.com).
Alvan L. Bobrow
