New York has enacted a new annual surcharge on certain high-value New York City residential properties that do not serve as a primary residence, Pied-à-Terre Tax. The surcharge applies to fiscal years commencing on or after July 1, 2026, and is scheduled to expire on June 30, 2031.
The surcharge applies to three categories of covered property:
Standard rental apartment buildings, commercial properties, hotels, vacant land, new construction units without a certificate of occupancy, unsold sponsor units, and condominiums with more than three units under the same ownership are outside the scope of the tax.
The new surcharge is structured in two phases:
In Phase 1, for fiscal years beginning on or after July 1, 2026 and before July 1, 2028, Class 1 homes are taxed using current Department of Finance assessed market value, with rates of 0.8%, 1.05%, and 1.3% % depending on Phase 1 value. For Class 2 condos and co-ops, the initial phase uses current assessed market value with significantly higher rates of 4.0% for values from $1 million to $3 million, 5.25% for values more than $3 million to under $5 million, and 6.5% for values above $5 million.
In Phase 2, for fiscal years beginning on or after July 1, 2028, covered property is subject to rates of 0.8% for phase two market value of $5 million to $15 million, 1.05% for more than $15 million to $25 million, and 1.3% for more than $25 million. For condos and co-ops, phase two market value is determined using a method that considers comparable condo/co-op sales, bringing those properties closer to actual market pricing. Class 1 properties remain valued at assessed market value.
The surcharge is added on top of existing property taxes, so it creates a meaningful new annual carrying cost for owners of covered second homes. The initial-phase rates for condos and co-ops are higher because those units are often taxed today using valuations that are far below actual market sale prices.
For many luxury condo and co-op owners, the most important long-term planning issue may be the transition to the Phase 2 sales-based valuation model. Although the later-phase rates are lower, the value base may be much higher than the current assessed values used in the initial years.
The surcharge does not apply if the property qualifies as a primary residence. For this purpose, primary residence includes use as the primary residence of a covered owner, certain immediate family members of a covered owner, or one or more qualifying lessees or sublessees occupying the property under a bona fide arm’s-length lease with a term of at least one year. The Department of Finance will make annual primary-residence determinations and that owners may need to provide supporting documentation if an exemption is claimed. The Department may audit a primary-residence certification for up to six years from the date submitted.
A Class 2 condominium with a Phase 1 assessed market value of $2,000,000 would fall into the $1-3 million bracket and produce an annual Phase 1 surcharge of $80,000 ($2,000,000 × 4.0%).
If that same Class 2 property had a Phase 2 comparable-sales value of $20,000,000, it would fall into the over $15 million to $25 million bracket and produce an annual Phase 2 surcharge of $210,000 ($20,000,000 × 1.05%).
Owners of high-value New York City second homes should review the Pied-à-Terre Tax, especially if property may qualify as a primary residence, or is expected to transition into a higher valuation base in later years. For luxury Class 2 properties in particular, the new rules can materially increase annual carrying costs and should be considered as part of broader ownership and residency planning.
If you have any questions or concerns about how the new rules may affect your property, please contact your DDK team or connect with us here.
