New York State has enacted the fiscal year 2026-2027 budget, which includes a new surcharge on certain high-value second homes in New York City, commonly referred to as a “pied-à-terre” tax. The surcharge will take effect on July 1, 2026, and is scheduled to sunset on June 30, 2031. Surcharges imposed for the 2026-2027 fiscal year will be due on January 1, 2027.

The surcharge will be implemented in two phases, with different market value thresholds, surcharge rates, and valuation methods used for each phase:

• Phase one will be from July 1, 2026, through June 30, 2028, and
• Phase two will be from July 1, 2028, through June 30, 2031.

Properties Subject to the Surcharge

The surcharge will apply to “covered property,” which includes certain New York City residential property that is not considered a “primary residence” and that meets specified market value thresholds.

• Class one properties: Generally, one, two, and three family homes with a market value of $5 million or higher.
• Class two properties: Generally, condominium units and co-op units with a market value of
  • $1 million or higher, during phase one, or
  • $5 million or higher, during phase two.

Surcharge Rates

For phase one, the rate of surcharge will be determined separately for class one and class two properties. One of two different rate schedules will apply based on the property’s class, with the applicable rate within each schedule depending on the property’s market value. For phase two, only one rate schedule will apply to both classes of properties.

Determination of Market Value

Based on currently available information, and subject to any future administrative guidance issued by the New York City Department of Finance (DOF), during phase one, the market value of a covered property for purposes of determining the surcharge should be the market value determined by the DOF for property tax purposes. This value is generally reported on the Notice of Property Value (NOPV) issued by the DOF for the applicable fiscal year. However, for a co-op, the market value shown on the NOPV must be allocated among the co-op units based on the number of shares of stock in the co-op representing an interest in the applicable unit. The market value shown on the NOPV for class two properties is generally a fraction of the actual fair market value of such units. The surcharge rate differential between class one properties and class two properties during phase one is intended to account for that “discounted” value until the phase two valuation procedure (described below) is implemented.

During phase two, the market value of class one properties will be determined in the same manner as in phase one. However, during phase two, the market value of class two properties will be determined by the DOF using a valuation method that considers sales of comparable residential condominium and co-op units. Because the DOF will begin valuing class two properties using a methodology intended to more closely approximate fair market value, the surcharge rates and thresholds for both classes of properties will converge in phase two.

The DOF is expected to issue a “notice of surcharge” to each owner of a covered property, setting forth the market value of the property, although the DOF has not yet issued guidelines relating to the requirements for the provision of notices of surcharge.

Properties Not Subject to the Surcharge

The surcharge will not apply to vacant land, unsold sponsor inventory in newly developed residential condominiums or co-op buildings subject to an offering plan, or property for which a temporary or permanent certificate of occupancy is required but has not yet been issued. Any property considered a “primary residence” or that falls below the applicable market value threshold will also not be subject to the surcharge.

Determining Primary Residence

The term “primary residence” is defined as the use of covered property as a primary residence by the “covered owner,” an immediate family member (a spouse, child, sibling, parent, grandparent, or grandchild) of the covered owner, or an individual lessee or sublessee who occupies the property under a bona fide, arm’s-length lease agreement with a term of not less than one year.

The determination of whether a covered property is a primary residence is made based on the use of the property as of January 5 of the preceding fiscal year. That determination will be based on factors identified by the DOF rules, including, but not limited to, whether the property was occupied, in the aggregate, for a majority of days during the calendar year by a covered owner. For the 2026-2027 fiscal year, the status of a covered property as a primary residence will be determined based on the use of the property as of January 5, 2026.

The DOF is required to make, on an annual basis, an initial determination of the status of a covered property as a primary residence. The DOF must provide the owner of a covered property a notice that includes such initial determination and an opportunity to provide proof of primary residence. For the 2026-2027 fiscal year, the DOF is required to issue such notices by August 30, 2026.

The legislation provides several examples of documentation that may be used to establish that a covered property constitutes a primary residence. To prove that a covered property is a “primary residence,” the DOF may require the owner to provide a certification that the property is a “primary residence” and provide supporting documentation demonstrating that, for example:

• The covered owner used the property address as his or her permanent home address on his or her New York State resident income tax return for the preceding calendar year;
• The property received a real property tax exemption for the preceding fiscal year, or the owner of the property received a tax credit for the property for the preceding calendar year, through the School Tax Relief (STAR) program;
• The property is the primary residence of a lessee or sublessee who is a natural person; or
• The property is the primary residence of an immediate family member of the covered owner, provided the covered owner is a natural person.

A “covered owner” generally includes (i) the individual owner of the covered property, (ii) in the case of a trust that owns the covered property, the beneficial owners who are the sole beneficiaries of the trust, and (iii) with respect to covered property owned by a corporation, partnership, or limited liability company, the shareholders, partners, or members holding a majority interest in such entity.

The DOF is charged with promulgating rules and providing a list of factors to be considered in determining whether a property is considered a “primary residence.” The DOF also has authority to promulgate rules that permit any certification or documentation submitted to be subject to audit during a period of six years from the date of submission.

Looking Ahead

The new surcharge represents a significant development for owners of high-value New York City residential properties that are not used as primary residences. While the legislation establishes the framework for the surcharge, several questions regarding its implementation and application remain. Additional guidance from the DOF will be important in resolving outstanding issues, including those relating to valuation, ownership structures, changes in ownership, and the administration and enforcement of the surcharge. We will continue to monitor developments and provide updates as further guidance is issued. If you have any questions regarding the surcharge or its potential impact on your specific circumstances, please contact a member of the Pryor Cashman Tax Group.