As part of New York State’s 2026 to 2027 budget legislation, the state legislature has enacted a new annual surcharge — dubbed the pied-à-terre tax — on residential property located in New York City that does not serve as a primary residence. The surcharge, which goes into effect on July 1, 2026, and is set to expire on June 30, 2031, targets owners of high-value pied-à-terre properties, i.e., second homes, in New York City. This update provides an overview of the tax, including its impact on clients holding property through trusts and LLCs.

The Two Phases

The legislation operates in two phases.

Phase 1 (July 1, 2026 through June 30, 2028)

During Phase 1, the surcharge applies to condos and co-ops with an assessed value of US$1 million or more at the following rates:

  • 4% for properties with an assessed value between US$1 million and US$3 million; 
  • 5.25% for properties with an assessed value between US$3 million and US$5 million; and
  • 6.5% for properties with an assessed value greater than US$5 million.

Generally, the assessed value for condos and co-ops in New York City is considerably lower than market value.

The surcharge also applies to one to three-family homes with a market value of US$5 million or more, as determined by New York’s Department of Finance, at the following rates:

  • 0.8% for properties with a market value between US$5 million and US$15 million;
  • 1.05% for properties with a market value between US$15 million and US$25 million; and
  • 1.3% for properties with a market value greater than US$25 million.

Phase 2 (Beginning July 1, 2028)

During Phase 2, the surcharge will apply to condos, co-ops and one to three-family homes with a value of US$5 million or more, based on a forthcoming valuation model that New York’s Department of Finance will develop to approximate market value through sales of comparable properties. Using the forthcoming valuation model, property valuations for condos and co-ops will increase, and the annual surcharge rates for condos and co-ops will match those for one to three-family homes identified above.

The Primary Residence Exclusion

The surcharge applies only to covered property that is not a primary residence. A property is considered a primary residence if, as of January 5 of the preceding fiscal year, the property was occupied for more than half the year by: (1) one or more “covered owners,” or an immediate family member (defined as a spouse, child, sibling, parent, grandparent or grandchild) of one or more covered owners; or (2) one or more lessees or permitted sub-lessees occupying the property pursuant to an arm’s-length lease with a term of not less than one year. For property held in trust, the beneficial owner(s) of the trust are treated as the covered owners of the property for purposes of determining whether the property is a primary residence, so long as the beneficial owner(s) are also the sole beneficiaries of such trust. For property held in an LLC, partnership or corporation, the majority interest holders are treated as the covered owners of the property. 

For example, if a grantor transfers his New York City co-op to a revocable trust of which he is the sole beneficiary during his lifetime, the grantor is treated as the covered owner for purposes of the primary residence determination. If the grantor occupies the property as a primary residence, the property qualifies for the primary residence exclusion, and the surcharge does not apply. However, if the grantor uses the property only occasionally — as a pied-à-terre — the exclusion is unavailable, and the surcharge is imposed on the property.

Similarly, if an individual holds a covered property through an LLC in which the individual is the majority interest holder, that individual is treated as the covered owner. If neither the majority interest holder, nor an immediate family member nor an arm’s-length lessee occupies the property as a primary residence, the property is subject to the surcharge. 

Notably, where multiple individuals each hold a minority interest in an LLC such that no single holder constitutes a majority interest holder, no individual is treated as a covered owner for purposes of the primary residence exclusion, and the property would be subject to the surcharge regardless of whether any interest holder resides there, unless the property is the primary residence of an arm’s-length lessee.

Ambiguities exist in situations where a property is held by a trust with multiple beneficiaries or where property is held by a trust through a majority membership in an LLC. The statute is silent as to how the primary residence exclusion should apply when the trust and LLC structures are stacked.

The “covered owner” concept is relevant not to payment, but exclusively to the primary residence determination. The legal owner, i.e., the trustee, LLC, partnership or corporation, is ultimately responsible for payment of the surcharge. 

New York’s Department of Finance will notify owners of properties subject to the tax no later than August 30, 2026, after which time, owners may contest such determination by submitting proof of primary residence, such as the covered owner’s tax return identifying the property as a permanent home address or a qualifying lease agreement. 

Payment

The Department of Finance will add the surcharge to the covered property's statement of account and will administer and enforce it in the same manner as real property taxes, except that any abatement, credit or exemption authorized by law will not apply to the surcharge. 

For the fiscal year beginning July 1, 2026, the surcharge will be due and payable on January 1, 2027. In future years, the surcharge follows the same semi-annual installment schedule as regular New York City real property taxes.

Given the complexities of the so-called pied-à-terre tax — especially as it relates to trusts and LLCs — we encourage our clients to reach out to us to discuss how this tax impacts them.