New York City Pied-à-Terre Surcharge

Summary

New York City has a new annual tax, referred to as the pied-à-terre surcharge, which was enacted as part of New York’s FY 2026–27 budget and signed into law on May 28, 2026. The tax is an annual surcharge on certain high-value NYC residential properties that are not used as a primary residence.

Overview

Which parties and property types are subject to this tax?

The tax applies to NYC non-primary residences, including one- to three-family homes with a Department of Finance ("DOF") market value of $5 million or more and condominiums or cooperative units with a DOF market value of $1 million or more. The properties are valued according to their condition as of the January 5th preceding the fiscal year in question (“taxable status date”), with the first taxable status date being January 5th, 2026. The lower $1 million DOF threshold for condominium and cooperative units reflects NYC’s assessment system and is intended to capture units with an approximate actual market value of $5 million or more. The tax applies when the property is not used as a primary residence by the owner or another qualifying party, including where the property is held through a business entity or trust.

For fiscal year 2026-2027, the DOF has until August 30, 2026, to provide notice to owners of properties that are subject to the tax. Any notice received should be reviewed promptly to determine whether the property has been properly classified, valued, and treated as a non-primary residence. Please note that failure by the DOF to provide such notice does not affect the validity of the imposition of the tax. Therefore, property owners should also refer to the property assessment roll to determine whether the tax will be imposed.

How is the tax imposed?

The tax is imposed at specific rates depending on property type and the value of the property determined by the DOF as of the taxable status date. Since the DOF currently undervalues condominiums and cooperative units due to the DOF’s use of an income-based method rather than a comparable sales method, the tax has two phases to account for the current understated value of condominiums and cooperative units.   

Primary Residence Exemption

The property may not be subject to tax if the property is the primary residence of a current owner, or in some cases, the primary residence of an immediate family member (spouse, child, sibling, parent, grandparent, or grandchild). Qualifying rental use may also be treated as primary-residence use where the property is occupied by a tenant under a bona fide, arm’s-length lease of at least one year with a natural person.

The deadline for submission of an exemption application via the DOF’s portal is September 18, 2026.

Key Considerations and Observations for Potentially Affected Owners

Owners of high-value NYC residential property should evaluate the new surcharge by considering the following practical questions, but not limited to the below:

• whether the property is properly treated as a primary or non-primary residence;
• whether the timing of a purchase or sale affects who bears the tax;
• how the property is actually used; and
• whether any entity, trust, or similar ownership structure changes the analysis.

Primary residence status will be central for many potentially affected owners. Any position that the surcharge does not apply should be consistent with the owner’s New York income tax filings, domicile indicators, property tax filings, and other residency-related records. Owners should also expect that property records may be compared against NYC personal income tax filings or other information available to taxing authorities.

The tax should be considered in connection with purchases, sales, and other ownership changes. Since the surcharge is tied to the NYC property tax cycle, buyers and sellers of potentially covered properties should consider whether it should be addressed in purchase agreements, closing adjustments, indemnities, or other transaction documents.

Actual property use will be a key part of the analysis. A second home used only occasionally for personal purposes could present exposure. Potentially mitigating facts may include use as the primary residence of the owner, in some cases, of a qualifying family member, or qualifying rental use under a bona fide, arm’s-length lease of at least one year with a natural person.

Entity or trust ownership should not be assumed to avoid the surcharge. The final law is drafted to reach certain properties held through trusts, partnerships, corporations, LLCs, and similar structures. Hence, the analysis may require review of beneficial ownership, control, use of the property and any future ownership changes.

How We Can Help / Contact Information

Careful analysis should be coordinated with broader estate, income tax, financing, transfer tax, and administrative considerations along with review by tax, legal, and investment advisors. The new surcharge may impact property tax, personal income tax residency, estate planning, transaction planning, investment decisions, and legal ownership structures, especially those held through tier-structures, therefore positions should be evaluated consistently and documented before relevant deadlines arise.

We are available to help navigate these issues and assist with evaluating whether the NYC property is subject to the tax, whether the exemption is applicable and with review and analysis of the documentation in support of the property owner’s application for the exemption.

For more information, please contact Wayne Berkowitz and Sarah Kim or a member of the State and Local Tax Practice.