Key Takeaways
- New York City (NYC) pied-à-terre tax applies starting July 1, 2026, to high-value nonprimary residences.
- Co-ops, condos and one-to-three family homes face different thresholds, rates and valuation rules.
- Co-op boards, condo and home owners should review exemptions, rental documentation and entity ownership to manage compliance risk.
Owners of high-value co-ops, condominiums and investment properties in New York City will soon face a new annual surcharge tax. As part of New York State’s fiscal year 2027 budget, lawmakers approved a new pied-à-terre tax targeting certain residential properties that are not used as a primary residence. The tax is scheduled to take effect on July 1, 2026, and may affect nonresident owners, foreign investors and properties held through LLCs, corporations and trusts.
What Is the Pied-à-Terre Tax?
The newly enacted pied-à-terre tax is an annual surcharge imposed on certain NYC residential properties that are not occupied as a primary residence.
The legislation is estimated to generate approximately $500 million annually in additional revenue to help address NYC’s ongoing budget challenges. The tax is aimed primarily at high-value second homes and apartments owned by individuals who live outside NYC, including nonresident domestic owners and foreign investors who maintain a New York residence for occasional use. While the legislation is intended to target high-value second homes, many owners are still trying to determine whether their property qualifies for an exemption, particularly where ownership is held through an LLC, trust or corporation.
Properties subject to the tax:
- One-to-three family residential homes valued at over $5 million (class one property)
- Residential cooperative unit valued at over $1 million (class two property)
- Residential condominium unit valued at over $1 million (class two property)
Residential property occupied by the owner or an immediate family member as a primary residence is generally exempt from the tax. Similarly, a property leased to a tenant who uses it as a primary residence for at least one year may also qualify for an exemption.
How Will the Tax Be Calculated?
The pied-à-terre tax will be levied in two phases. The first phase will cover fiscal tax years 2026-2027 and 2027-2028. The second phase will cover fiscal tax years 2028-2031. While the tax applies to several types of residential properties, the valuation methodology and ultimately the amount of tax due will vary depending on the type of property.
Phase One: Fiscal Year 2026-2028
| 1-3 Family Homes (class one) | Condo unit (class two) | Co-op unit (class two) |
Assessment Threshold | $5 million value | $1 million value | $1 million value |
Valuation Method | Current NYC Dept of Finance assessed market value | Current NYC Dept of Finance assessed market value | Estimated: total building value |
Surcharge Tax Rate | 0.8% ($5 million – $15 million) / 1.05% ($15 million to $25 million) / 1.3% (over $25 million) | 4.0% ($1 million – $3 million) / 5.25% ($3 million to $5 million) / 6.5% (over $5 million) | 4.0% ($1 million – $3 million) / 5.25% ($3 million to $5 million) / 6.5% (over $5 million) |
The assessment thresholds differ for one-to-three family homes and Class 2 properties because NYC’s current assessment methodology values these property types differently. The threshold is lower and the surcharge rates are higher for condominiums and co-ops because their assessed values are generally lower than their fair market values. Beginning in 2028, the NYC Department of Finance is expected to transition condominiums and co-ops to a comparable-sales valuation methodology. As those assessed values move closer to market values, the surcharge rates are scheduled to decrease under Phase Two of the legislation.
Phase Two: Fiscal Year 2028-2031
| 1-3 Family Homes (class one) | Condo unit (class two) | Co-op unit (class two) |
Assessment Threshold | $5 million value | $5 million value | $5 million value |
Valuation Method | Current NYC Dept of Finance assessed market value | Comparable sales | Comparable sales |
Surcharge Tax Rate | 0.8% ($5 million – $15 million) / 1.05% ($15 million to $25 million) / 1.3% (over $25 million) | 0.8% ($5 million – $15 million) / 1.05% ($15 million to $25 million) / 1.3% (over $25 million) | 0.8% ($5 million – $15 million) / 1.05% ($15 million to $25 million) / 1.3% (over $25 million) |
How Will the Tax Be Assessed?
NYC will identify properties that potentially qualify for the pied-à-terre tax and notify property owners by August 30, 2026. Property owners will be able to contest their inclusion if they feel their property should be excluded.
The pied-à-terre tax will be added to the property tax statement and it will be due and payable in the same manner as regular property tax.
- For owners of one-to-three family homes and condominiums, the tax implementation process should be straightforward and the tax will be added to their property statement.
- For co-ops, the implementation process could be challenging since the co-op corporation is responsible for collecting the tax from tenant-stockholders whose units are not occupied as a primary residence by either the shareholder or a qualifying tenant.
- For a non-primary-residence co-op unit, the tax liability is generally calculated based on the number of shares allocated to that unit.
To qualify for an exemption, property owners may be required to demonstrate primary residence status, occupancy patterns, rental activity and ownership information.
Rental Properties
Will your rental property be subject to the pied-à-terre tax?
Based on current guidance, properties actively rented and occupied by tenants may qualify for an exemption. Eligibility will depend on the specific facts and circumstances of each property, however, including occupancy and lease arrangements. Property owners should maintain documentation supporting rental activity and occupancy.
Potential Impact
The long-term impact of the pied-à-terre tax remains uncertain, but several points are widely discussed throughout the real estate industry.
Potential consequences may include higher carrying costs for luxury apartments, increased use of rental arrangements, greater scrutiny of entity-owned properties, increased compliance requirements, downward pressure on certain segments of the luxury market and additional due diligence during acquisitions and ownership restructuring.
We are seeing property owners revisit whether vacant apartments should remain for occasional use or transition to active rental properties.
We have also heard concerns from co-op boards and management companies regarding how the tax will be implemented and administered. Unlike condominiums and one-to-three family homes, co-op corporations and managing agents may play a significant role in identifying taxable units, collecting the surcharge and administering exemptions. How these responsibilities are ultimately administered will be an important issue to watch as additional implementation guidance is released.
Key Takeaway
The pied-à-terre tax adds another layer of complexity for owners of high-value NYC residential property. While many details regarding implementation and administration are still evolving, affected property owners should begin evaluating whether their property may be subject to the tax and whether an exemption may apply. As additional guidance is released, maintaining proper documentation and understanding how the rules apply to your specific situation may help avoid surprises once the tax takes effect.
Contact Us
Our professionals are available to assist you with tailored guidance. For specific inquiries regarding the above, please reach out to your PKF O’Connor Davies client service team or:
Crystal Chan, EA
Tax Director
cchan@pkfod.com
Joseph Lee, CPA
Partner
jlee@pkfod.com