New NYC Non-Primary Residence Tax

Summary

On May 27, 2026, the New York State Legislature passed budget legislation for State fiscal year 2026-2027 that, among other provisions, implements a New York City pied-à-terre tax.[1] More specifically, the provision imposes a new surcharge on certain high-value residential property that does not serve as a primary residence. On June 5, 2026, the NYC Department of Finance (“DOF”) issued proposed rules on the surcharge. The surcharge applies beginning on July 1, 2026, and remains in effect until June 30, 2031.[2]

Overview

General rule. The surcharge is imposed on NYC residential property, including one- to three-family homes, condominiums and co-ops that meet the applicable value threshold and that were not a primary residence on the relevant determination date -- for the 2026 surcharge that date is January 5, 2026.[3] Leasing a property does not avoid the surcharge unless the property is used as a primary residence by a lessee (or sub-lessee) under a bona fide lease negotiated at arm’s length with a term of at least one year.

Accordingly, to determine whether the surcharge applies, there are two operative questions: Does the property meet the value threshold? And was the property used as a primary residence on the relevant date? If it meets the value threshold and was not used as a primary residence, it is subject to the surcharge.

Value Thresholds and Rates

Whether a property meets the value threshold requires a determination of a property’s value by NYC. The legislature’s intent was that the surcharge be imposed on second homes worth at least $5 million. However, this $5 million threshold referred to a valuation method that looks at the sales price of similar properties. NYC, however, does not currently have a procedure for valuing some residential properties using such a comparable-sales method.[4] This is because, for property tax purposes, residential properties in NYC are generally divided into two classes, and only one of the classes uses the comparable-sales method. Class 1, which includes most residential properties of up to three units, such as one- to three-family homes and condominiums of not more than three stories, is valued using this method. For Class 2, however, which includes all other residential property, including cooperatives and larger condominiums, market value is determined by comparison to rental buildings. This generally results in significantly lower valuations for these Class 2 properties than the comparable-sales approach.

Since the City does not currently have procedures for comparable-sales valuations for Class 2 properties (as they’ve always been valued by the comparable-rental method for property tax purposes), the surcharge will be implemented in two phases. In the phase-one transition period, the surcharge determination will rely on DOF’s existing valuation methodologies for all properties to arrive at the “phase one market value.” Because Class 2 condominiums and cooperatives will initially be valued using existing comparable-rental methodologies, which generally produce lower values, those properties are subject to a lower value threshold and higher rates than Class 1 property during phase one, with the surcharge applying to such properties with a DOF market value determination of at least $1 million (see table below).[5]

In phase two, beginning July 1, 2028, condominiums and cooperatives will be valued for purposes of the surcharge using a comparable-sales methodology.[6] These “phase-two” valuations will generally be substantially higher than the existing valuations for these properties. Using those phase-two values, the same graduated rates will apply to all covered property, as will the $5 million threshold for application of the surcharge.

Phase One: Fiscal Years Beginning July 1, 2026 and July 1, 2027

Phase Two: Fiscal Years Beginning on or After July 1, 2028

Primary Residence Standard

If a property meets the valuation threshold, the next key question is whether a property served as a primary residence as of the applicable “taxable status date”; for the surcharge imposed in 2026, the taxable status date is January 5, 2026.[1]

Primary residence. A property is a primary residence if, as of the applicable taxable status date, it served as the primary residence of (i) one or more covered owners (see below) or an immediate family member of one or more covered owners or (ii) one or more lessees or sub-lessees, provided that such lease or sub-lease qualifies as described below. “Immediate family member” means a spouse, child, sibling, parent, grandparent or grandchild.[2]

Covered owner. Covered owners are generally the owners of the residential property.[3] For property held through an entity, the covered-owner concept generally looks through the entity: For property held in trust, it was not clear from the statutory text whether multiple beneficiaries of a trust could all be the covered owners of property held by the trust, but the rules proposed by DOF provide that a beneficial owner of the trust is a covered owner only if he or she is the sole beneficiary of the trust.[4] For property held by a partnership, corporation or LLC, an individual who is a majority partner, shareholder or member of such entity is the covered owner of the property.[5]

Leases and rentals. Renting the property does not, by itself, prevent the surcharge from applying. Instead, a leased property will be subject to the surcharge unless the property is used as the primary residence by the lessee or sub-lessee, and the lessee or sub-lessee is a natural person occupying the property under a bona fide lease negotiated in an arm’s-length transaction with a term of at least one year.[6] Under DOF proposed rules, a lease is treated as entered into at arm’s-length only if the rental amount reflects the fair market rental value of the property and the lease transaction is entered into between “two informed and willing parties, where neither is under any compulsion to participate in the transaction.”[7] Further, circumstances must not indicate a “reasonable possibility” that the lease or sub-lease was entered into for the purpose of avoiding imposition of the surcharge.[8]

Determination of Primary Residence

Initial determination. DOF will annually identify covered property that it initially determines is not a primary residence. This initial determination will be based on information available to DOF, including whether a covered owner occupied the property for a majority of days during the immediately preceding calendar year or a covered owner indicated that such property is their permanent residence in other documents previously submitted to the City.[9] DOF must provide notice of its initial determination of primary residence to each owner of a covered property; for 2026, the notice must be provided by August 30, 2026.[10]

Appeal and documentation. The DOF website will contain a portal that will allow the owner of a property to file an appeal of the initial determination. The appeal will require a certification that the property is used as a primary residence along with the following documentation:[11] 

Proof of primary residence:

• Proof that the property was listed as the permanent home address on the most recently filed state or federal personal income tax return or
• at least two of the following documents showing residence at the property on or prior to the taxable status date (i.e., January 5 for the 2026 surcharge):
• a valid driver’s license or non-driver’s identification card
• a voter identification card issued by the NYC board of elections
• other proof determined by DOF to be acceptable.

If the primary resident is an immediate family member of a covered owner, required proof also includes:

• one or more birth certificates indicating that such individual is an immediate family member of such covered owner; or
• affidavits from both such covered owner and such individual indicating that such persons are immediate family members.

If the primary resident is a qualified lessee or sub-lessee, required proof also includes:

• an unexpired lease or sub-lease entered into at arm’s length and
• one or more of:
• a utility bill in the renter’s name issued within the last year,
• an unexpired renter’s insurance policy or
• proof of rental payment to the owner of the property.

If the covered owner owns the property through majority ownership in an LLC, partnership or corporation, required proof also includes:

• the operating agreement for such LLC, the partnership agreement for such partnership, or the articles of incorporation of such corporation; and
• an affidavit from an officer of such LLC, partnership or corporation indicating that such individual has a majority interest in such LLC, partnership or corporation.

If the covered owner owns the property through a trust, required proof also includes:

• a copy of the trust agreement indicating that such individual is the sole beneficiary of such trust; and
• an affidavit indicating the same from a trustee of such trust.

After considering an owner’s submission and other available information, DOF will determine whether the property is not a primary residence; that determination is a final determination of DOF. However, an owner who believes that DOF’s market value determination of the property is excessive or unlawful, or that the property qualifies as a primary residence, may seek review of these issues by the Tax Commission. If, however, the owner failed to timely file an appeal within 30 days of the initial determination or failed to provide proof of primary residence, the initial DOF determination becomes final. In that case, the determination generally cannot be challenged under the Administrative Code review provisions, except in connection with a market-value challenge before the Tax Commission.[12]

Administration and Enforcement

Collection and exemptions. DOF will add the surcharge to the property’s tax statement; generally, the surcharge is due and payable in the same manner as real property taxes. For fiscal year 2026-2027, however, any surcharge imposed on a property is due and payable on the same date as the second semi-annual installment of real property taxes.[13] Real property tax abatements, credits and exemptions do not apply to the surcharge.[14]

For residential cooperatives, the surcharge will be assessed against the co-op, which will pay the charge and then recoup the cost from the relevant tenant-stockholder.[15]

Enforcement. The law provides that the surcharge is to be administered and enforced, to the greatest extent practicable, in the same manner as real property taxes. The Administrative Code also authorizes liens, tax-lien enforcement and foreclosure mechanisms, warrants, and subpoenas for information relevant to the surcharge or primary-residence determination. DOF may promulgate rules establishing penalties of up to 50% of the surcharge if, after notice and a hearing, DOF determines that certification or documentation submitted to DOF contained inaccurate or misleading information that was material to the surcharge determination and was submitted negligently or in bad faith, or that a residential condominium unit was divided into more than three units to avoid the surcharge and the owner acted in bad faith. DOF may also subpoena witnesses and documents to obtain information pertinent to determining the surcharge, including primary-residence status.[16]