New York lawmakers passed a controversial tax on second homes in New York City.
Legislators on Wednesday approved the state’s budget that includes a new annual levy on pieds-à-terre in the five boroughs worth $5 million or more. The tax will take effect July 1 and has been projected to generate roughly $500 million in revenue each year, though some officials say that number is likely lower.
The vote on the bill came nearly two months after the governor’s deadline to deliver a full budget package. Ahead of the vote, real estate leaders sounded the alarm over the proposal, versions of which had been introduced by previous administrations. Many in the industry expressed frustration when Hochul announced the tax in April with few specifics about how it would actually work.
Much of the confusion centered on how the tax would apply to co-ops used as second homes. Unlike condo or townhouse owners, co-op owners don’t receive individual property tax bills, but rather, the co-op’s manager pays a single bill for the entire building.
Now that the bill is set to take effect, details of the tax are finally in the public eye, and some real estate players say the specifics are cause for concern, particularly for co-ops.
Questions of enforcement
Under the legislation, the city’s finance department will add the surcharge to the co-op’s overall bill, meaning co-op boards will be responsible for collecting the money from shareholders who use their apartments as pieds-à-terre.
That process will likely create legal headaches for the board, especially if pied-à-terre owners don’t pay up, according to Compass’ Jason Haber. If the board falls behind on its taxes, the city could place a lien on the entire building. Haber added that the complications could push co-ops to stop allowing shareholders to use or purchase apartments as second homes.
“Whoever wrote this has never lived in a co-op,” Haber said. “I would love to invite state legislators to a co-op board meeting because they’re not understanding what they’re legislating.”
While some already prohibit the practice, those buildings are in the minority of co-ops, said Andrew Freedland of Herrick’s Condo & Co-op Law Group. He agreed with Haber that the tax will create additional strife for co-op boards and the city, which will have to lay significant groundwork in order to apply the tax to relevant co-op owners.
“The co-op board doesn’t have the same tools as the city and the state to enforce taxes,” Freedland said. He added that for the city, “it’s going to be a lot of work for them to get from point A to point B.”
For the first two years, the city’s finance department will use a formula to determine which co-ops meet the valuation threshold by calculating what an individual owner’s shares are worth based on the building’s assessed value. The city’s methodology for determining a building’s assessed value is currently being challenged in court.
Starting in 2028, the city will begin using market value to determine which homes are subject to the tax. That shift could create issues for other property types outside of co-ops, according to Ben Williams, an attorney with Rosenberg & Estis.
He pointed specifically to townhouse owners in Manhattan and wealthy neighborhoods in Brooklyn who have likely ignored the city’s market value estimates in years past because their property taxes are based on assessed values, which have caps under New York’s property tax system.
“That’ll be an interesting year,” Williams said of the 2028 starting line. “There are winners and losers,” he added about the tax overall. “It’s not perfect, but it can’t be perfect. It’ll have to be good enough.”
The city will establish residency, in part, by the address listed on a homeowner’s New York State tax return, according to Williams. He added that he expected many owners will challenge either their residency determination or the valuation of their homes, meaning more work for the finance department and the tax commission. Williams said he expected those agencies to hire additional employees to manage the influx of protests.
In terms of whether the home is a primary residence or not, the tax includes some exceptions, such as a full-time tenant living at the property or the owner’s family using it as their primary residence.
Read more
For co-ops, pied-à-terre tax leaves more questions than answers
NYC’s pied-à-terre tax sounds simple. The math isn’t, comptroller report finds
Hochul outmaneuvers real estate with surprise pied-à-terre tax
