New York City’s budget is over $120 Billion a year, more than the national budgets of Ireland and Portugal combined. Someone has to pay all these bills, and it may be you.
The Pied-a-Terre tax (PAT) – a “second home” tax – was passed on the assumption people owned NYC real estate and probably worked in the City, but since they hated paying NYC income taxes, they bought another home in the Hamptons or the Jersey Shore which they claimed was their actual domicile, thereby minimizing their overall income tax bill.
If you have enough money to purchase a second home in New York City: Congratulations, you’ve earned it (or more likely, you inherited it). But if you thought you could own a Park Avenue palace with a rapper’s bathroom located over a French-Philippian fusion viennoiserie without having to pay for the privilege (or, arguably, paying even more for the privilege), you will now pay your penance for your pomposity.
How the Pied-a-Terre Tax Will be Applied
From now until July 2028 the threshold for a “second home” condo or co-op to qualify for the tax is $1,000,000 or more, and the threshold for a house is $5,000,000. The good news is that this value is based on New York Department of Finance’s “Assessed Value” of the property. This amount tends to be much lower than the apartment’s actual value, and you can view your home’s current Assessed Value on NY DOF’s website. After June 2028, the threshold for condos and coops increases to $5,000,000 but it is assessed at “Market Value”, which is considered the actual value of the home, and is almost always markedly higher than the assessed value.
PHASE I: July 1, 2026 – June 30, 2028:
During the initial transition period, condominiums and co-ops have a lower valuation threshold, but significantly higher rates to account for historically low city assessments on their Assessed Values.
- Condominiums & Co-ops (Based on NYC Department of Finance Assessed Value):
- $1 million to $3 million: 4.0% annual surcharge
- $3 million to $5 million: 5.25% annual surcharge
- Over $5 million: 6.5% annual surcharge
- One- to Three-Family Homes (Based on Market Value):
- $5 million to $15 million: 0.8% annual surcharge
- $15 million to $25 million: 1.05% annual surcharge
- Over $25 million: 1.3% annual surcharge
PHASE II: July 1, 2028 and Beyond
Beginning in July 2028, the City shifts to a standardized Market Valuation model using actual sales of comparable units (I.e., the presumed actual value of the property). The threshold and rates uniform across all property types:
- Properties valued under $5 million: Exempt (0%)
- $5 million to $15 million: 0.8% annual surcharge
- $15 million to $25 million: 1.05% annual surcharge
- Over $25 million: 1.3% annual surcharge
Comments and Insights
While the PAT Tax does leave lot of questions unanswered, we do know the following caveats with certainty:
- Changing the Deed of your Brooklyn home or Manhattan Condo to corporate ownership will not avert the PAT Tax:
- You must rent the property at fair market value to a tenant who uses the unit as their primary residence to avoid the PAT Tax.
- If you own the property but a close family member resides there as their primary residence, such as a child going to college and living in the home, you may avoid the PAT.
- Second homes owned by Trusts that have close family members living in the property may also be exempt from the tax.
- A result that baffles no one except Vladimir Lenin, the PAT may actually serve to DECREASE the value of expensive properties, as prospective purchasers will not want to purchase second homes they have to pay both property taxes and a PAT Tax.
- If you were on the City’s published “Hit List” in the beginning of August, take note that you are more likely than not excluded from the PAT Tax, the City Administration just wants to give you another reason to move out of New York.
