New York State has enacted a long-debated tax on high-value residential properties in New York City that do not serve as a primary residence, colloquially known as the “pied-à-terre tax”. Effective for fiscal years beginning July 1, 2026, the legislation imposes a substantial annual surcharge on certain luxury condominiums, cooperative apartments, and one-to-three family homes located in New York City that fail to qualify as a primary residence.
The text of the law is available HERE.
This client alert will take a closer look at the new pied-à-terre tax that was passed on May 28, 2026.
Implementation of the Tax
The legislation will be implemented in two phases. During an initial transition period beginning July 1, 2026, the surcharge will apply using existing New York City Department of Finance (“DOF”) valuation methodologies with lower eligibility thresholds for condominiums and cooperative apartments. Beginning July 1, 2028, the law shifts to a new valuation system that relies on comparable-sales methodologies and generally applies the surcharge only to properties with market values of at least $5 million.
The tax will apply to:
Class 1 Properties
• One-, two-, and three-family homes (other than vacant land) meeting the applicable value threshold.
Class 2 Properties
• Residential condominium units.
• Residential cooperative apartments.
Understanding the Two-Phase Structure
Unlike one-, two-, and three-family homes (Class 1 properties), New York City does not generally assess condominiums and cooperative apartments based directly on their actual sales prices. Instead, under long-standing statutory valuation rules, condominiums and cooperatives are valued using methodologies that compare them to rental properties and impose restrictions that often result in assessed market values substantially below actual free market transaction values. As a result, many luxury condominium and cooperative units with free market values exceeding $5 million may currently have Department of Finance valuations that are a fraction of their actual sales prices.
The “pied-à-terre tax” addresses this disparity through a transitional structure. During the initial phase, lower valuation thresholds and higher surcharge rates apply to condominiums and cooperatives based on existing Department of Finance valuation. Beginning July 1, 2028, the law will shift to a new comparable-sales valuation system intended to more closely approximate actual market value and apply a uniform surcharge schedule across covered property types.
In this regard, for Phase 1 (July 1, 2026- June 30, 2028) the following properties will be subject to the tax:
• Class 1 property (1-3 family dwelling) has a Phase One DOF valuation of at least $5 million.
• Condominium units and cooperative apartments have a Phase One DOF valuation of at least $1 million.
In order to verify if a Co-Op or Condominium unit would be subject to the pied-à-terre surcharge in Phase 1, go to the New York City Department of Finance Website HERE and verify with the following information:
• Condominium units have separate tax bills and can be verified if the DOF valuation is under $1 Million.
• Cooperative buildings pay a single tax bill that is divided between the shareholders. To see if an individual unit in a Co-Op is subject to the tax, multiply the DOF valuation of the building by the quotient of (a) the shares in a cooperative corporation assigned to the particular cooperative dwelling unit; divided by (b) the total shares of stock in such cooperative corporation.
Phase Two: Beginning July 1, 2028
Beginning July 1, 2028, the surcharge applies only if the property has a Phase Two market value of at least $5 million, determined under a new valuation methodology that relies on comparable sales and disregards certain statutory restrictions that historically reduced condominium and cooperative valuations.
Surcharge Rates by Phase
The Phase One rates applicable to condominiums and cooperatives are substantially higher than those imposed on Class 1 properties. The legislature appears to have adopted these elevated rates as a transitional mechanism to compensate for the significantly reduced DOF valuation currently assigned to many luxury condominium and cooperative units. Once the comparable-sales valuation methodology takes effect in 2028, the legislation replaces those transitional rates with a uniform surcharge schedule applicable to all covered property types.
How Will Primary Residence Status Be Determined?
The most important aspects of the tax is the determination of whether a property qualifies as a “primary residence.” While the statute provides a framework for that analysis, it also provides for DOF to develop additional criteria through future rulemaking.
The statute directs DOF to make an annual determination as to whether a covered property is a primary residence. In making that determination, DOF must consider factors established by regulation, including whether the property was occupied by a covered owner for a majority of the days during the applicable calendar year.
If, however, an owner does not occupy the property as a primary residence, the property may still be exempt from the tax as long as it serves as the principal home of family members of the owner, including a spouse, child, sibling, parent, grandparent, or grandchild. In addition, a property may qualify if it serves as the primary residence of a tenant or authorized subtenant occupying the property pursuant to a bona fide arm’s-length lease with a term of at least one year. Accordingly, some properties that function as long-term investment properties may avoid the surcharge notwithstanding the owner’s nonresident status.
Unlike the Cooperative and Condominium Property Tax Abatement, which disqualifies ownership of a unit in a limited liability company (text for the Cooperative and Condominium Property Tax Abatement available HERE), the new surcharge allows the many common ownership structures to qualify for primary residency. Properties held in trusts, limited liability companies, corporations, and partnerships are not automatically excluded from primary residence treatment by virtue of their manner of ownership. Instead, the DOF analysis generally focuses on the beneficial owners or majority owners of such entities.
DOF is required to make an initial determination of non-primary residence status for properties meeting the applicable valuation thresholds and to provide notice to affected owners. For the initial fiscal year beginning July 1, 2026, those notices must be issued no later than August 30, 2026 and will apply to 2025 residency. Property owners will then have an opportunity to submit evidence demonstrating that the property qualifies as a primary residence. The statute identifies several categories of documentation that may support such a claim, including New York State resident income tax returns listing the property as the owner’s permanent home address, STAR exemption records, New York resident tax credit filings, and documentation establishing qualifying tenant occupancy or occupancy by an immediate family member. DOF may also require certifications and additional supporting materials as part of the review process. Until implementing regulations are issued, significant questions remain regarding the weight that will be afforded to various forms of evidence, how competing indicators of residency will be reconciled, and the extent to which owners with multiple residences may be able to establish primary residence status for purposes of the surcharge.
Owners should be mindful that the compliance burden does not end once a determination is made. The legislation expressly authorizes DOF to audit certifications and supporting documentation for up to six years after submission. The City is also authorized to share information with the New York State Department of Taxation and Finance, and vice versa, in connection with residency determinations. Given those enforcement tools, owners claiming primary residence status should maintain contemporaneous records supporting occupancy, residency, leasing arrangements, and tax filings.
The foregoing is not intended to be comprehensive nor constitute legal advice. If you would like to discuss your specific circumstances or would like more information, feel free to contact us at (212) 625-8505.