New York Passes New Pied-a-Terre Tax on High Value Second Homes
By Bonnie Reid Berkow and Adam Leitman Bailey
As part of New York’s Fiscal Year 2027 Budget, New York State has enacted a new annual “pied-à-terre” tax on certain high-value residential properties located in New York City not used as a taxpayer’s primary residence. The 2026-2027 New York State Budget Bill has officially added a “City Surcharge on Property That Does Not Serve as a Primary Residence.” The Mayor’s office announced that the new tax is part of the City’s effort to close the budget gap without cutting essential services or increasing the burden on working families and is anticipated to raise approximately $500 million/year in revenue from owners of luxury second homes who benefit from city services but do not live in New York City full-time or pay city resident income tax. The surcharge is imposed in addition to existing real property taxes.
This new tax became effective July 1, 2026 and is scheduled to run through June 30, 2031.
Who is Subject to the Tax?
The tax applies to “covered owners” of residential properties in NYC where the owner’s primary residence is elsewhere and they do not file NYC/NYS resident income taxes.
To determine whether a home qualifies as a pied-à-terre, the NYC Department of Finance will look to the address listed on an owner’s New York State tax return.
The Department Of Finance will make annual determinations regarding primary residence status and establish procedures for taxpayers to substantiate any exemption. 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.
What are covered properties?
Covered properties include:
· One- to three-family homes: Valued at $5 million or more.
· Condominiums and Cooperatives (Co-ops): Valued at $1 million or more during Phase 1 (reflecting lower baseline assessed values).
The DOF will determine what qualifies as a “non-primary” residence for purposes of the pied-à-terre surcharge tax on an annual basis. The DOF will look back on the residence owner’s taxable status as of January 5 of the immediately preceding fiscal year in which the surcharge is imposed to assess whether the surcharge is applicable.
Phase 1 Rates (July 1, 2026 – June 30, 2028)
During the first phase, the tax is calculated using current Department Of Finance assessed or imputed market values:
· 1-3 Family Homes ($5M+ market value):
- $5 million to $15 million: 0.8%
- Over $15 million to $25 million: 1.05%
- Over $25 million: 1.3%
· Condos & Co-ops ($1M+ assessed value):
- $1 million to $3 million: 4.0%
- Over $3 million to $5 million: 5.25%
- Over $5 million: 6.5%
According to accountant advisors, the surcharge is graduated, which means that value below each threshold is not taxed, and only the value above a threshold is taxed at the higher rate. For example, a Class One home valued at six million dollars would owe eight thousand dollars, because the rate applies only to the one million dollars of value above the five million dollar threshold.
For condos and co-ops in the first two years, the surcharge is subject to a lower market value threshold. The City values condos and coops using an old income-based formula, which is often less than 20% of the actual sale price.
Shareholders or unit owners may be subject to the surcharge on market value over $1million if it is not their primary residence.
In order to be prepared for the surcharge, every co-op and condo board, owner or managing agent should identify which apartments in each building might be subject to the surcharge by having a Phase 1 market value of more than $1 million or a Phase 2 market value of over $5 million.
The Department of Finance published a Supplemental Market Value Roll on July 24, 2026, related to the annual non-primary residence property surcharge. The roll includes, but is not limited to, those properties that may be subject to the surcharge. It apparently includes hundreds, if not thousands, of units that should not be subject to the surcharge, creating panic among many NYC residents.
However, the Department of Finance website also states only those who have received a notification from the Department of Finance will have this surcharge added to their property taxes in 2027, creating even more confusion.
Those who receive letters claiming they are designated for the tax can challenge it by submitting proof that their property meets any of the below criteria for exemption by the deadline set forth in the letter.
Phase 2 Rates (Beginning July 1, 2028)
Beginning July 1, 2028, condominium and cooperative units will be valued using a methodology that considers comparable sales, resulting in valuations that more closely approximate fair market value.
At that time:
§ the separate condominium and cooperative rules will be eliminated;
§ all covered residential properties will be subject to the same $5 million threshold; and
§ the graduated surcharge rates applicable to Class One homes will apply uniformly to all covered properties.
§ $5 million to $15 million: 0.8%
§ Over $15 million to $25 million: 1.05%
§ Over $25 million: 1.3%
Key Exemptions.
You are generally exempt from the surcharge if:
· The property is used as a primary residence by the owner or an immediate family member (spouse, child, parent, sibling, grandparent, or grandchild).
· The apartment is leased for at least one year to an arm’s-length third-party tenant who uses it as their primary residence.
· The owner is a full-time New York City resident.
· The property is used as a primary residence by one or more individuals who collectively hold a majority interest in the LLC, corporation, or partnership that owns the property or an immediate family member of the owner or majority interest holder.
· The property is used as a primary residence by the sole beneficiary or beneficiaries of a trust.
One unanswered question relates to whether the surcharge will apply to individuals who maintain their primary residency (domicile) outside New York City but qualify as New York City residents by virtue of spending more than 183 days in New York City. Based on the current legislation, the surcharge applies to covered property that is “not a primary residence.” A person domiciled elsewhere cannot, by definition, claim their New York City property as their primary residence
because their domicile is their primary residence. Further, the primary residence proof acceptable to New York City (a state income tax return listing the property’s address as the covered owner’s permanent home address) would not be an option for someone whose permanent home address is outside New York City. There is no evidence at this time that the DOF is accepting a primary residence designation based on the owner claiming they spend more than 183 days in New York City.
Not subject to the tax
· Rental apartment buildings & commercial property
· Hotels and vacant land
· New construction with no certificate of occupancy
· Unsold sponsor units under an active offering plan
· A condo combining more than three units under one owner
Deadlines and Compliance
· The NYC Department of Finance is mailing notices to potentially impacted owners, who must respond with proof of primary residency or eligibility for exemptions.
· You can rebut it with proof such as a NY State resident income tax return listing the address as your permanent home, a prior STAR exemption, or homeowner tax-rebate credit. The Department of Finance may audit a certification for up to six years, and penalties of up to 50% of the surcharge apply to filings made negligently or in bad faith.
· Under current Department of Finance guidance, the deadline to file exemption applications has been extended to Sept. 18, 2026. The extended deadline applies to everyone who received a “You may be subject to…” notice from the Department of Finance. Homeowners who believe they may qualify for an exemption are encouraged to submit an application as soon as possible by visiting nyc.gov/npsurcharge.
· It is critically important to respond to a letter claiming that you owe the surcharge by the date deadline. If you miss the deadline, the tax will be imposed and there is currently no mechanism for waiver for late filing.
· For the initial 2026–2027 fiscal year, the tax payment is due in full on January 1, 2027.
· For Coops, the City bills the building directly, and the Coop board is responsible for collecting the surcharge from individual shareholders. If the surcharge tax is not paid the City could ultimately place a lien on the entire property. Coop Boards may want to amend the proprietary lease or add a special assessment mechanism so that primary residence owners aren’t left subsidizing pied-à-terre owners who default on payment of the surcharge. Some Coops may simply tighten or end the practice of allowing apartments to be held as second homes.
· For Condos, the Condo unit owner is billed directly and is responsible for payment of the tax.
To support property owners throughout the process, Department of Finance has launched a dedicated webpage nyc.gov/npsurcharge featuring frequently asked questions, an eligibility tool, detailed guidance, and instructions for submitting documentation.
Those who believe they qualify for an exemption can file for one at https://a836-pts-efile.nyc.gov/SmartFile/Filing/FilingType/Info/NYC_NPS.
Exemption applications for co-ops can be filed at https://a836-pts-efile.nyc.gov/SmartFile/Filing/FilingType/Info/NYC_NPS_COOP.
For more Department of Finance information on the surcharge, visit nyc.gov/site/finance/property/non-primary-residence-surcharge.page.
How to dispute the surcharge:
If you believe your property has wrongfully received the surcharge, you will not have to pay the surcharge if you can submit proof that your property meets any of the above criteria for an exemption.,
Submit your surcharge exemption application on the webpage nyc.gov/npsurcharge for residential homes and condos or co-ops to provide the documentation described below.
Primary residence documents:
All owners applying for an exemption from the surcharge will be asked to provide the following for each occupant you identify as using the property as a primary residence:
· Most recently filed federal or state tax return
If a tax return is not available, you can provide any two of the following three items:
· Driver’s license or other DMV-issued identification
· Voter identification card
· Other proof showing that the property is your primary residence
Tenant documents:
If the property is the primary residence of a tenant or subtenant, you will be asked to provide the primary residence documents listed above, as well as:
· A copy of the current lease and one additional rental document, such as a utility bill, proof of rent payment, or renter’s insurance policy, OR · A Tenant or Subtenant Affidavit and two additional rental documents
Immediate family member:
If the property is the primary residence of an immediate family member of the owner or majority interest holder, you will be asked to provide the primary residence documents listed above, as well documentation proving the family relationship.
· Birth certificate
· Marriage certificate · Immediate Family Member Affidavit Form
Business entity:
If the property is owned by a business entity (such as an LLC, corporation, trust, or partnership) and is used as a primary residence by a majority member, shareholder, or partner, you will be asked to provide the primary residence documents listed above.
In addition, you must provide: · Partnership agreement, trust agreement or affidavit, LLC operating agreement, or articles of incorporation · Majority Interest Affidavit
Determination of surcharge challenge:
The Department of Finance will review your response and documents. It will send you a determination letter informing you whether it has approved your application for exemption from the surcharge.
If your application is denied, you may file an appeal with the New York City Tax Commission by the applicable March 1 or March 15, 2027 deadline referenced below, or within 30 days of the date on the final Determination notice sent from the Department of Finance, whichever is later. Visit the Tax Commission’s surcharge appeal page for more information.
Property value challenge:
If you believe the Department of Finance has incorrectly valued your property, you can file a challenge with the NYC Tax Commission. Visit the Tax Commission’s surcharge appeal page for more information.
Appeal to Tax Commission:
In addition to the challenge to the property’s value, you can also ask the Tax Commission to review whether your property is exempt from the surcharge because it is used as a primary residence. If you choose to do so, you will not be able to also apply for an exemption from the DOB.
Filing Deadlines to appeal to Tax Commission:
For the 2026/27 and 2027/28 tax years, the deadline to file Non-Primary Residence Surcharge Appeals with the Tax Commission is March 1, 2027 for properties in Tax Class Two and March 15, 2027 for properties in Tax Class One, if you appeal both the Department of Finance’s primary residence and Market Value Determinations to the Tax Commission at the same time.
If you initially appeal the Department of Finance’s residency Determination to the Department of Finance, you may appeal its final Determination to the Tax Commission by the applicable March 1 or March 15 deadline, or within 30 days of the date on the final Determination notice sent from the Department of Finance, whichever is later.
Note however, any appeal of your Market Value must still be filed by the applicable March 1, 2027 or March 15, 2027 deadline listed above. If you do not appeal the Department of Finance’s residency determination you may still challenge your Market Value at the Tax Commission by the applicable March 1, 2027 or March 15, 2027 deadline.
Appeals to the Tax Commission must be timely made on a completed FORM TC107 which can be downloaded with instructions. Go to the Tax Commission’s surcharge appeal page for more information with regard to filing an appeal.
Legal challenges to the surcharge legislation.
Because this newly enacted surcharge is in early stages of implementation, it is likely to generate both administrative appeals and judicial challenges.
Potential issues include constitutional challenges based on due process concerns arising from abbreviated filing deadlines and procedural requirements.
Constitutional challenges may also arise over how the tax is calculated and allocated for coop or condo units, particularly when the Phase Two tax is implemented.
Department of Finance’s rules limit market value correction procedures to fiscal years beginning on or after July 1, 2027; however, for the 2026-2027 fiscal year, the first year is retroactive to the January 5, 2026, taxable status date – a date five months prior to the bill’s passage. There are no rules on the inequity of applying the surcharge to January 5, 2026, the taxable status date, that preceded the law’s enactment by more than five months, thereby making the surcharges subject to challenge as a prohibited ex post facto law.
Some tax attorneys have raised potential constitutional concerns under the Equal Protection or Dormant Commerce Clause, arguing that the surcharge disproportionately targets non-residents who own secondary homes. However, because States maintain broad authority to levy real estate taxes, it may survive constitutional scrutiny.
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This is a new and still-developing area of law, and additional guidance from the Department of Finance is expected. We will continue to monitor developments.