New York City's Pied-à-Terre Surcharge

UPDATE:  October 2, 2026

On September 29, 2026, the New York Supreme Court, Richmond County, rendered a decision in connection with the lawsuit filed by property owners challenging the NYC pied-à-terre surcharge. O’Brien v. City of New York, Index No. 85217/2026. As previously noted, a temporary restraining order was issued on August 10, stopping NYC’s implementation and enforcement, which was later lifted on August 13. The hearing regarding the lawsuit was held on August 31.

The Court concurred with the Petitioners that the failure of the New York City Department of Finance (“DOF”) to make the required individualized determinations of primary residency demonstrated a lack of due diligence, rendering its actions arbitrary and capricious. The Court noted that this failure unfairly shifted the burden on homeowners to prove residency. “All the DOF did to satisfy its obligation to produce and publish a Supplemental Roll of property owners subject to the surcharge was to take the lazy route and merely re-publish the roll of regular real estate assessments and label it as a list of properties possibly to be surcharged, causing confusion and dismay.”

Moreover, the Court found that the DOF’s implementation of the surcharge “substantially harmed and penalized” homeowners and by requiring homeowners to seek an “exemption,” which “irresponsibly and unnecessarily caused homeowners to expend time and money” that “lack any real guidance as to the proof required.”

The Court concluded that the notices were affected by errors of law and violated due process. The Court ordered the cancellation of all previously issued notices and directed new notices to be mailed only after an individualized determination is made along with factors and information used by the DOF in its claim that the property is not a primary residence.

On the same day the decision was issued, NYC filed a Notice of Appeal in its attempt to stay the decision. We will continue to monitor developments as the appeal proceeds but note that the deadline for property owners to apply for an exemption from the NYC pied-à-terre surcharge has not changed and remains due on or before October 6.

Separate Constitutional Court Challenge

On September 28, 2026, a lawsuit was filed in New York Supreme Court, Suffolk County, by former U.S. Commerce Secretary Wilbur Ross, Hilary Ross and Steven Wynn challenging the constitutionality of the NYC pied-a-terre surcharge. Ross v. State of New York, Index No. 628629/2026. We will monitor this litigation as well as it raises questions regarding the validity of the surcharge, unlike the lawsuit above which addresses the DOF’s implementation and enforcement of the 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.

Property Type	Phase 1 (transition period) FY 2026–2027 and FY 2027–2028	Phase 2 (later valuation rules) FY 2028–2029 through FY 2030–2031
Class 1 (1-3 family homes)	0.8% for $5M – less than $15M 1.05% for $15M – less than $25M 1.3% for $25M+	0.8% for $5M – less than $15M 1.05% for $15M – less than $25M 1.3% for $25M+
Class 2 (condos and co-ops)	4.0% for $1M – less than $3M 5.25% for $3M – less than $5M 6.5% for $5M+	0.8% for $5M – less than $15M 1.05% for $15M – less than $25M 1.3% for $25M+

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.