We told you it was coming. Back in April, we covered Governor Hochul’s proposal to impose a pied-à-terre surcharge on NYC second homes, noting that the details – rates, methodology, administration – were still to come. With the Governor’s final budget coming into place, the provisions of the new tax are finalized. Let’s take a look.
The Big Picture
The legislature’s stated rationale is straightforward: while residents of New York City contribute daily to the city’s economy and pay taxes, many of the city’s most valuable homes are held as second homes, allowing their owners to reap considerable benefits from the city’s broader economy, from city services, and from a vibrant real estate market. The surcharge exists, in the legislature’s words, to “maintain important city services.” The new law adds Article 30-C to the Tax Law and a new Chapter 32 to Title 11 of the Administrative Code, and takes effect immediately, applying to fiscal years commencing on or after July 1, 2026, with a sunset date of June 30, 2031.
Properties Subject to Tax
The surcharge is imposed beginning July 1, 2026, on a “covered property” that is not a primary residence. Three categories of property fall within the definition of “covered property”:
- Class one property, i.e., one-, two-, and three-family residential homes valued at over $5 million;
- Class two: a residential cooperative (co-op) dwelling unit valued at over $1 million; and
- Class two: a residential condominium (condo) dwelling unit valued at over $1 million.
If you own a standard rental apartment building, a commercial property, a hotel, vacant land, a new construction unit without a certificate of occupancy, an unsold sponsor unit, or a condo that includes more than three units under the same ownership, you are not subject to the tax.
The Rates & Valuation: A Two-Phase Approach
The statute employs a two-phase valuation and rate structure, which is worth understanding carefully.
Phase One: FY 2026-2027
Here’s a summary of the thresholds, valuation method, and rates in phase one:
| Feature | Class One (1-3 Family Homes) | Class Two (Condos) | Class Two (Co-Ops) |
| Threshold | $5 million | $1 million | $1 million (imputed phase one market value per unit) |
| Valuation Basis | Current DOF assessed market value | Current DOF assessed market value | Imputed: total building value * unit's share percentage |
| Rates | 0.8% / 1.05% / 1.3% | 4.0% / 5.25% / 6.5% | 4.0% / 5.25% / 6.5% |
What jumps out, of course, is the difference in rates between residential homes and condos/co-ops. The differing rate structure arises because, at present, assessed values for condos and co-ops are a small fraction of what those units would actually sell for, possibly as low as 5 to 15 percent of true fair market value. This means that a unit worth $10 million on the open market might carry a phase one value of only $500,000 to $1.5 million, and for the most high-value properties, the gap may be even wider than that. That’s why the threshold amount for condos/co-ops is lower ($1 million) during phase one, and also why the tax rates (4-6.5%) are higher.
Phase Two: FY 2028-2031
Here’s the same summary for phase two:
| Feature | Class One (1-3 Family Homes) | Class Two (Condos) | Class Two (Co-Ops) |
| Threshold | $5 million | $5 million | $5 million |
| Valuation Basis | Current DOF assessed market value (Same as Phase One) |
Comparable sales | Comparable sales |
| Rates | 0.8% / 1.05% / 1.3% | 0.8% / 1.05% / 1.3% | 0.8% / 1.05% / 1.3% |
Of particular note, the tax rates and thresholds for all property types even out in phase two. But that’ll happen because the City will start to value condominiums and cooperatives based on actual sales of comparable units, using something much closer to what the property would sell for on the open market.
What Is a “Primary Residence”?
At the heart of New York City's proposed pied-à-terre surcharge is a deceptively simple question: Does anyone actually live there? The entire structure of the tax turns on whether a property qualifies as a primary residence, and the proposal's answer to that question is deliberately open-ended. The statute identifies one relevant factor – whether the property was occupied for a majority of days in the calendar year – but immediately qualifies it with the phrase "including but not limited to," signaling that this is a floor, not a ceiling. No further definition is provided, and the Department of Finance (DOF) is expressly authorized to develop additional or entirely different criteria as it sees fit. For property owners, that broad administrative discretion may prove to be the most consequential feature of the entire proposal.
The exemption itself is wider than many owners might expect. It is not limited to an owner personally living in the home. A property also escapes the surcharge if an immediate family member – defined to include a spouse, child, sibling, parent, grandparent, or grandchild – occupies it as their primary residence. The same logic extends to arm's-length leases of at least one year, where a qualifying tenant's residency can shield the property from the surcharge. For properties held in trust or through an LLC or partnership, the analysis shifts to the beneficial or majority owner: if that person uses the property as a residence, the exemption may still apply. The upshot is that there is a meaningful range of arrangements that could keep a property off the surcharge rolls – but each one will need to be documented and, potentially, defended.
As for how that process works, DOF is required to make an initial primary-residence determination by August 30 of each year, measuring residency status as of January 5 immediately preceding the relevant fiscal year. Owners who receive an adverse determination have the opportunity to push back, and the statute identifies specific forms of rebuttal evidence: a prior-year New York State resident income tax return listing the property as the permanent home address, a prior fiscal year STAR exemption, receipt of the homeowner tax rebate credit, or proof that the property serves as the primary residence of a qualifying tenant or immediate family member. DOF also retains the authority to audit any primary-residence certification for up to six years from the date it was submitted, so good recordkeeping will matter as much as the underlying facts. And the reliance on concepts like "permanent home address" and days spent at the specific property – rather than the broader income tax residency framework – raises an important threshold question about exactly which owners are exposed to this tax in the first place.
One unanswered question: If a taxpayer maintains their primary residency (domicile) outside NYC but qualifies as a NYC statutory resident by virtue of spending more than 183 days in NYC, could they be subject to this tax? At least based on the current legislation, the answer appears to be yes. The surcharge applies to covered property that is "not a primary residence," which is a factual determination about how the property is used, which may be applied separately from NYC income tax residency concepts. Indeed, a person domiciled elsewhere cannot, by definition, use an NYC property as their primary residence – their domicile is their primary residence. And the primary residence proof acceptable to the City – a NYS income tax return listing the property's address as the covered owner's permanent home address – would not be available to someone whose permanent home address is in another state, even if they file as a NYC statutory resident. Moreover, while the statute speaks in terms of days spent at the residence, whereas the statutory residency test counts all days in New York City, regardless of how many are spent at the taxpayer’s permanent place of abode. On the other hand, since these taxpayers are paying their “fair share” – and the same amount of personal income tax that regular City residents pay, it seems antithetical to the purpose of the legislation to subject these taxpayers to the new tax.
Administration and Enforcement
The surcharge will be added to the covered property’s statement of account and will be due and payable in the same manner as real property taxes. For co-ops, each surcharge attributable to a non-primary-residence cooperative unit will be collected by the cooperative corporation from the tenant-stockholder whose shares represent that unit.
Penalties of up to 50% of the surcharge may be imposed if the Department determines, after notice and a hearing, that a certification or documentation submitted was inaccurate or misleading in a material way and was submitted negligently or in bad faith. And watch out for gaming the condominium definition: dividing a residential condominium unit into more than three units in bad faith to avoid the surcharge is also grounds for penalties.
The Takeaway
The pied-à-terre surcharge is real, it starts this July, and for owners of high-value NYC second homes, the stakes are significant. The two-phase structure means that the initial bite may be manageable for some – but starting in 2028, when market values are recalculated using comparable sales, the numbers could climb considerably. Whether an owner qualifies for the primary residence exemption will likely be the most litigated question under this new law, and the Department’s process for making – and challenging – those determinations will be worth watching closely. Stay tuned.
Disclaimer:
This blog is a form of attorney advertising. Hodgson Russ LLP provides this information as a service to its clients and other readers for educational purposes only. Nothing in this blog should be construed as, or relied upon, as legal advice or as creating a lawyer-client relationship.
