New York City Enacts Annual 'Pied-à-Terre Tax' on Second Homes

UPDATED: New York City Enacts Annual 'Pied-à-Terre Tax' on Second Homes

In July 2026, following a public hearing and comment period, the New York City Department of Finance (Department of Finance) adopted final rules governing the administration of the new tax, which became effective immediately. Most significantly, the final rules clarify that once a property meets the applicable valuation threshold, the applicable rate is applied to the property’s entire market value as opposed to just the portion of the valuation above that threshold. Accordingly, for example, a qualifying one- to three-family home with a market value of $20 million will be subject to a 1.05 percent rate on the full $20 million market value, resulting in an annual tax of $210,000.

The final rules also clarify that one- to three-family homes will use the Department of Finance market value assigned for the applicable fiscal year, rather than the five-year average valuation reflected in earlier proposed iterations of the tax. During phase one, condominium units will likewise use Department of Finance market values calculated for real property tax purposes, while co-op units will be valued by allocating the co-op property’s market value (calculated as if the property were a rental building) according to each unit’s share ratio. Beginning July 1, 2028, both condominium and cooperative units will move to the phase two valuation regime, which will involve sales data, although the Department of Finance has not yet specified how that methodology will operate.

For fiscal year 2026-2027, the Department of Finance will mail its initial determination of whether the property is subject to, and the amount of, the tax to the property owner at the address in the Department of Finance data system no later than August 30, 2026. The notice will include the amount of the projected tax, information concerning the manner and the deadline for filing an appeal. According to the Department of Finance’s Adopted Final Rules, owners will have until 30 days after the notice is transmitted to appeal. If the Department of Finance does not transmit the notice, the 30-day period will begin when the tax appears on the assessment roll. However, according to the Non-Primary Residence Property Surcharge page on the Department of Finance Website, owners will have until September 18, 2026, to file their appeals to the tax. It is recommended that owners check the Department of Finance FY2027 final property assessment data and submit their appeal as soon as possible, if applicable.

A property will not be subject to the tax if it is the primary residence of any of the following: (i) the owner of the property, (ii) a tenant or subtenant, (iii) one or more individuals who collectively hold a majority interest in the LLC, corporation or partnership that owns the property, (iv) an immediate family member of the owner or majority interest holder, and (v) the sole beneficiary or beneficiaries of a trust.

The final rules also clarify the treatment of rental properties. In order to avoid the tax, the lease must be based upon arm’s-length terms and the tenant must continue to use the property as the tenant’s primary residence. However, the final rules permit an owner to establish a qualifying month-to-month tenancy with a tenant who uses the property as the tenant’s primary residence, and therefore the rules do not require a lease with a minimum term of 12 months. In order to demonstrate a tenancy that will qualify to avoid the tax, the owner must provide a copy of the arm’s-length lease or sublease, and at least one additional rental document, such as a utility bill, renter’s insurance policy or proof of rental payment. For a month-to-month tenancy, the owner must provide affidavits from both the owner and the tenant, together with at least two additional rental documents.

New York City Enacts Annual 'Pied-à-Terre Tax' on Second Homes

June 11, 2026

New York City has enacted a new annual tax (being referred to in the press as the "pied-à-terre tax") on certain residential properties that are not used as primary residences, either by the owner of the property or a tenant of the property. This new tax was included in New York’s fiscal year 2027 budget and is intended to raise revenue from owners of luxury second homes who benefit from city services but do not live in New York City full-time or pay city resident income tax (although such owners do, in fact, pay New York City property taxes assessed against their properties). Property owners should be aware that this surcharge is layered on top of existing property tax obligations and is calculated on a tiered basis tied to assessed market value. Owners should also know that a residential property that is unoccupied and not the primary residence of the owner of such property will likely remain subject to the tax, and that the owner of such property will be permitted to claim an exemption from the new tax only if the property is leased at arm's length to a tenant who uses the property as the tenant’s primary residence for a minimum of 12 months.

The new tax will be implemented on July 1, 2026, and is scheduled to remain in effect through June 30, 2031, unless extended. The newly enacted annual tax applies in addition to regular property taxes. Accordingly, the owner will be required to pay both regular property taxes and the new "pied-à -terre tax" on an annual basis.

With respect to one- to three-family homes, the new tax applies once the property's "market value," as determined by the New York City Department of Finance (Department of Finance), exceeds $5 million. For such homes, the market value is based on comparable sales, and the legislation uses the Department of Finance estimates to calculate a five-year average based on sales during the immediately preceding five years. The pied-à-terre tax is based on that five-year average and is tiered as follows: the first $5 million of valuation is not subject to the tax; the portion of the valuation above $5 million and up to and including $15 million is taxed at 0.8 percent; the portion of the valuation above $15 million and up to and including $25 million is taxed at 1.05 percent; and the portion of the valuation above $25 million is taxed at 1.3 percent. For example, a taxable $20 million home would owe an annual tax comprised of both (i) 0.8 percent on the $10 million valuation between $5 million and $15 million, and (ii) 1.05 percent on the $5 million valuation between $15 million and $20 million.

Unlike one- to three-family homes, condos and co-ops will be subject to a two-phase system. During the initial phase, which will occur during fiscal year 2026-2027 (July 1, 2026 – June 30, 2027) and fiscal year 2027-2028 (July 1, 2027 – June 30, 2028), the Department of Finance will establish each property’s “market value” to determine the valuation upon which the new tax is levied. Current state law requires the Department of Finance to value condos and co-ops as if they were rental buildings. As such, the current Department of Finance methodology is based on comparable rental buildings rather than actual unit sale prices. For example, for a condominium building, the Department of Finance will determine the building’s market value by applying a capitalization rate to an estimate of the building’s net operating income as if the building were a rental building of comparable location, age, size and number of units, and then allocating such market value among the condominium units, usually by the size of the units. During the initial period, the first $1 million of valuation will not be subject to the tax. The portion of the valuation from $1 to $3 million will be taxed at 4 percent, the portion of the valuation from $3 to $5 million will be taxed at 5.25 percent and the portion of the valuation above $5 million will be taxed at 6.5 percent. After 2028, New York City is expected to implement a new comparable-sales valuation system for condos and co-ops, and apply the same $5 million threshold with the 0.8 percent to 1.3 percent rate schedule used for one- to three-family homes.

A property is not subject to the new tax if it is occupied as the primary residence of the owner or as the primary residence of an immediate family member of the owner. The law also exempts properties that are subject to bona fide long-term rental arrangements from the surcharge. If the owner rents the property under an arm's-length lease for at least one year and the tenant uses the property as the tenant’s primary residence, then the property will not be subject to the tax. The legislation is silent on the implications of a property remaining vacant while the owner searches for a tenant; however, a property that remains empty will most likely be subject to the tax, as the exemption from the tax is focused on the existence of an actual qualifying lease for a tenant that uses the property as the tenant’s primary residence, rather than the mere intent of the owner to lease the unit. Further, a key distinction is not simply whether a tenant is a New York resident; the property would not enjoy an exemption if it is leased to a resident who rents the property as the tenant’s second home.