WEEHAWKEN, NJ – OCTOBER 5: The solar rises behind buildings alongside Billionaire’s Row in New York Metropolis on October 5, 2025, as seen from Weehawken, New Jersey. (Photograph by Gary Hershorn/Getty Pictures)
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A model of this text first appeared in CNBC’s Inside Wealth e-newsletter with Robert Frank, a weekly information to the high-net-worth investor and shopper. Enroll to obtain future editions, straight to your inbox.
New York’s proposed tax on second properties value greater than $5 million is prone to spark expensive authorized battles over tips on how to worth the town’s most costly actual property, based on appraisers and attorneys.
Town’s so-called “pied-à-terre” tax, introduced final week by New York Gov. Kathy Hochul and New York Metropolis Mayor Zohran Mamdani, would impose an annual surtax on non-primary residential actual property value greater than $5 million. The governor and mayor mentioned the levy will elevate about $500 million a yr to assist repay the town’s funds deficit.
Officers have not launched any particulars, together with the tax charges or timing. But actual property appraisers and attorneys mentioned the tax units the stage for an enormous authorized battle over tips on how to worth high-end actual property in some of the costly markets on the planet. As a result of New York’s antiquated property tax system dramatically undervalues co-ops and condos, specialists mentioned the town should provide you with a brand new system for valuing high-end second properties.
Among the many questions: Will it’s as much as the property proprietor, or the town, to set the taxable worth? Will pied-à-terre house owners have to rent appraisers to worth their residences yearly? How will the town deal with the barrage of authorized challenges over values?
“The executive prices have not been thought by way of,” mentioned Jonathan Miller, CEO of Miller Samuel, the appraisal and analysis firm. “This tax may give start to a complete new cottage business, the place I get to do numerous value determinations.”
The tax is anticipated to be a part of the state’s annual funds and nonetheless needs to be authorised by the state legislature. It faces sturdy opposition from the real-estate business and related proposals have failed prior to now. Citadel on Thursday rebuked Mamdani for singling out CEO Ken Griffin in his push for the tax.
Earlier proposed pied-à-terre taxes included graduated charges primarily based on worth. A 2019 proposal, for instance, imposed a 0.5% tax on the worth of a pied-à-terre over $5 million, 1.5% over $10 million and 4% over $25 million.
Imposing a brand new surtax on the worth of second properties would require two new types of verification by the town: non-residency and worth. Hochul estimates that about 13,000 non-primary properties in New York Metropolis valued at $5 million or extra might be topic to the tax.
Miller mentioned 4,146 Manhattan residences bought for $5 million or extra over the previous 5 years. He estimates that about 70% of properties bought for $5 million-plus are second properties (and even third, fifth or tenth properties).
Proving nonprimary residence needs to be simple, primarily based on tax rolls. If the proprietor of a $5 million-plus property just isn’t a New York Metropolis tax resident, they are going to be topic to the levy. Those that buy condos by way of LLCs, that are seemingly the overwhelming majority of high-end consumers, could also be troublesome to determine. And since second-home house owners who hire to long-term tenants could also be exempt, some LLC house owners may have the ability to hire to themselves and probably keep away from the tax, based on actual property specialists.
The better drawback might be valuation. Actual property taxes are the biggest income for New York Metropolis, accounting for over 40% of whole tax income lately, based on the town’s Unbiased Funds Workplace. But the town’s evaluation system values properties far beneath their market worth. Because of a fancy authorized historical past that values sure sorts of actual property primarily based on their rental worth, the assessed values for New York Metropolis residences are sometimes a fraction of their market worth.
“The assessed values are absurdly low,” mentioned Robert Pollack, senior associate at Marcus & Pollack LLP and an knowledgeable on New York actual property taxes. “They don’t seem to be consultant of market values.”
Griffin’s penthouse at 220 Central Park South, which Mamdani used as a backdrop to announce the tax, was bought in 2019 for $238 million. But the town assesses it at $6.99 million and lists its market worth at $15.5 million, based on Pollack. Few residences within the constructing, among the many most costly within the metropolis, must pay the pied-à-terre tax underneath the town’s present values.
The 2019 pied-à-terre proposal referred to as for valuations to be primarily based on current sale costs. But brokers mentioned that since each condominium is totally different, and markets change rapidly, utilizing current sale costs can distort the values. To hit the income goal of $500 million a yr for the brand new tax, metropolis officers will seemingly must create a brand new system for figuring out market values, based on specialists.
Miller mentioned one possibility can be for the property house owners to get common value determinations, which might be create a flood of demand for appraisal corporations like his.
“I might be thrilled if each condominium in New York Metropolis should get an annual appraisal,” he mentioned.
Even with proprietor value determinations, nevertheless, there might be strain to worth residences slightly below their nearest tax thresholds. There may wind up being a lot of residences valued at $4.98 million, for instance, to keep away from the tax. Or somebody with a $26 million condominium may get it appraised for $24.9 million to keep away from the highest 4% fee.
“You would have wind up having these huge clusters of valuations round every tax bracket,” Miller mentioned.