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Property owners in New York City have until Oct. 6 to apply for an exemption from the pied-à-terre tax enacted as part of budget legislation on May 28. The tax, which the city can impose on certain non-primary residential properties beginning July 1, 2026, is due to sunset on June 30, 2031.
The newly enacted tax could introduce significant interpretive and administrative uncertainties, as it requires the New York Department of Finance to determine whether a residence is the primary home of its owner or qualifies for another exemption, and because it is retroactive in determining who must pay the tax.
First proposed during New York City Mayor Zohran Mamdani’s campaign, the temporary real property surcharge has a phase-in valuation structure for fiscal years beginning before July 1, 2028, with a second valuation structure for fiscal years beginning on and after July 1, 2028.
The disparity between the phase-in valuation structure and the second valuation structure results from the fact that New York City does not currently use comparable sales to develop a market value for condominiums (condos) and cooperatives (co-ops). Instead, the city uses artificially lower assessed valuations that do not reflect the true market value of these properties.
Properties subject to the surcharge include “class one property” (including one- to three-family residential real property) and “class two property” (including residential condos and co-op dwelling units). For the first two fiscal years in which the surcharge is in effect, the surcharge applies to class one properties valued at $5 million or more (with surcharges that range from 0.8%-1.3% based on value) and to class two properties valued at $1 million or more (with surcharges that range from 4.0%-6.5% based on value).
To be subject to the surcharge, the covered property must be owned by a person who does not use the property as a primary residence. The surcharge does not apply to owners currently leasing the property to others under bona fide arrangements for a term of at least one year or to owners who have immediate family members living in the property.
The pied-à-terre tax law provides the New York City Department of Finance with broad administrative authority to implement the surcharge. The department can make an annual initial determination that a property with a value at or above the applicable threshold is not a primary residence (meaning the owner would tentatively be liable for the surcharge). The department provided these initial determinations to owners via notices issued beginning in late July.
Owners who received these notices currently can submit proof of primary residence to rebut the determination. After considering such proof, the department will determine whether each particular property, condo or co-op unit qualifies for the non-primary exemption.
The tax includes a retroactive measure dating back to Jan. 5, 2026, to determine whether a property was a primary residence or subject to the tax. That means that for the fiscal year beginning July 1, 2026, the department is determining primary residence status based on the owner’s activities as of Jan. 5, 2026. On July 14, the department finalized rules implementing the surcharge, less than a week after holding public hearings on the proposed rules.
Grant Thornton insight:
The new pied-à-terre tax law and the department’s interpretive rules create significant uncertainty with respect to determining whether a property qualifies as a “primary residence” and how certain property types — most notably condo and co-op units — will be valued. While the law provides that a property generally qualifies as a primary residence if it is occupied for a majority of days during the year, the tax’s standard is not completely consistent with New York’s statutory residency tests and instead focuses on the use of the specific property rather than the taxpayer’s presence in New York City.
Taxpayers may face increased challenges in substantiating primary residence status, particularly in cases involving multiple residences, partial-year use or changes in ownership during the year.
The department’s broad authority to issue initial determinations and require supporting documentation through its tax portal compounds potential taxpayer uncertainties around the law, particularly given the hastily drafted rules that will serve as guardrails for this process.
Questions remain around which types of documentation are sufficient to rebut a pied-a-terre determination, especially where third-party use (e.g., tenants or family members) needs to be proved to overturn that determination, or where ownership of the residence is held through a partnership or trust. In addition, the law’s reliance on a valuation framework that differs for condos and co-ops — combined with a transition to a comparable sales methodology in future years — will likely present implementation challenges and invite valuation disputes.
Determination notices and timeline for appeals
On July 24, the department published an assessment roll of approximately 959,000 New York City properties that could potentially be subject to the surcharge. Approximately 31,000 properties met the valuation thresholds necessary to be subject to the surcharge for the 2027 fiscal year. The department began mailing notices to property owners who may be subject to the surcharge in late July.
In early August, a group of homeowners filed a lawsuit in state trial court seeking to delay the start date of the tax, arguing that the publication of the list of properties that could be subject to the tax has caused “mass confusion” and invited “unwanted scrutiny” of their personal information. In response, a state court judge granted the homeowners’ request for a temporary restraining order blocking the city from enforcing the tax pending further proceedings.
The city requested a stay of the judge’s pause of the tax in an effort to preserve the tax’s implementation, pending a court hearing date of Aug. 31, during which New York State Supreme Court Justice Wayne Ozzi heard arguments to determine a ruling on the legality of the tax’s initial notification process. A ruling could come as soon as this month.
Initially, affected property owners had 30 days from the notice date to file an exemption application contesting the determination. However, in response to the lawsuit and complaints lodged by property owners and the practitioner community that the response period was too short, the city has twice extended the application deadline to contest the surcharge. Property owners now have until Oct. 6 to apply for exemption. The department has published a website with information about the surcharge, including details on applying for an exemption and the necessary documents to support an application.
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