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New York lawmakers have chased a tax on high-priced second homes for over a decade. A pied-à-terre tax nearly crossed the finish line in 2019 — until political momentum evaporated as quickly as it was built. Legislative leaders blamed administrative headaches, with co-op buildings a key sticking point.
On April 15, Gov. Kathy Hochul revived the effort with a late-stage budget push targeting New York City units valued at $5 million or more that aren’t primary residences and aren’t rented out to full-time tenants. The proposal, she said at the time, could hit roughly 13,000 properties and generate about $500 million a year to chip away at the city’s multibillion-dollar deficit. Analysis from Comptroller Mark Levine’s office published Thursday said the revenue generated could be anywhere between $340 million and $510 million depending on the details.
The mechanics remain an unresolved mess. The city’s tax system notoriously undervalues co-ops and condos, so any threshold would need a separate metric — and a path for owners to challenge it. Numerous questions remain unanswered. How will information gaps be filled on whether an owner is a full- or part-time resident? Then there’s billing: co-ops get a single tax bill, so how would the levy be split? By shares? And if the building pays, how are shareholders held accountable?
Public details are scant and key questions unanswered, leaving industry players and tax experts reading the tea leaves on how officials could implement the tax with the city’s existing systems while solving for the especially vexing problem of taxing co-ops.
“The nitty gritty is important here,” said Martha Stark, a former commissioner of the city’s Department of Finance under Mayor Michael Bloomberg. If the tax is structured as a property tax, and not a personal one, Stark said the city’s systems are “a pretty shaky foundation” that will take time and careful calibration to build on, and hit the revenue the governor is targeting.
“You could have properties worth $10 million and some of them are assessed at $300,000, that’s how screwy the system is,” said Stark.
Under state law, the city values co-ops and condos as if they were rental buildings, benchmarking them against comparable rentals’ income and expenses. The result: DOF valuations that fall far below what buyers actually pay.
For example, in fiscal year 2021 the average co-op carried a DOF-assessed value that amounted to 25 percent of the unit’s sales-based market value; and that value capture was even lower for condos at 22 percent, according to a report from the New York City Advisory Commission on Property Tax Reform. The gap widens at the high end, where comparable rentals are scarce, and it can vary by borough, the commission determined.
That mismatch complicates any pied-à-terre tax. To capture revenue from co-ops and condos, lawmakers would likely need to set a separate threshold.
The failed 2019 bill pegged that cutoff to a $300,000 assessed value, but even that risks letting some luxury units “slip through the cracks,” said Benjamin Williams, an attorney who leads the property tax practice of Rosenberg & Estis.
One option, he said, could be for the city to regularly examine assessed-to-market ratios and tailor thresholds by borough as a proxy for a $5 million price point. “The more and more complicated it gets, the fairer it could get,” added Williams.
How the city would assess the tax remains unclear as the governor and lawmakers hammer out the proposal’s details. Whatever they land on, tax experts generally say to expect a swell of tax commission challenges from co-op and condo owners arguing their units shouldn’t be swept in.
Further complicating matters, the city values co-ops at the building level, not by unit. Owners pay based on their proportional shares. The governor’s office told The Real Deal the pied-à-terre tax would follow a similar framework, but we don’t have the full picture.
Even defining who qualifies as a part-time resident is a moving target.
Officials could start by excluding units that receive residency-based exemptions, then those benefiting from the city’s co-op and condo tax abatement.
But many luxury units are held in LLCs and don’t qualify for that break, muddying the waters and potentially requiring the Department of Finance to adopt a more complex, case-by-case information gathering approach.
Some real estate professionals speculate that managing agents of co-ops — firms hired to be the operational backbone of a building — could be tapped to help officials determine which owners are primary residents. That prospect has some brokers nervous as managing agents are already spread thin.
“There’s a reason why it takes weeks for them to take a look at a board package,” said Brandon Mason, a broker and luxury real estate advisor with Douglas Elliman. “They’ve got so much on their plate already, and we just don’t need another level of complication there.”
Property managers aren’t thrilled about the possibility.
Daniel Wollman, CEO of Gumley Haft, said it’s conceivable but “not practical” for firms like his to get roped into fact-finding for the tax. Like much of the governor’s pied-à-terre proposal, the mechanics and the impact remain murky.
“It’s not my job to determine whether New York or some other jurisdiction is your primary residence,” said Haft. “But maybe the DOF makes us fill something out. It’s hard to say.”
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