New York City's pied-à-terre tax finally takes effect, but questions linger

On April 15, 2026, New York Governor Kathy Hochul announced a new tax on New York City luxury second homes worth $5 million or more. While the tax took effect on July 1, 2026, many questions about how it will work in practice remain even after final regulations were issued by the NYC Department of Finance. This alert highlights key issues for individuals who own New York City residences directly or indirectly through trusts and other entities.

What is the pied-à-terre tax?

Beginning July 1, 2026, the tax applies to New York City one- to three-family homes, co-op units, and condo units (collectively, taxable properties) valued above a specified threshold, unless the property qualifies as a primary residence, which is defined as a property that is used as a primary residence by:

• Its owner;
• An immediate family member (spouse, child, sibling, parent, grandparent, or grandchild) of its owner;
• A lessee under a bona fide, arm’s-length lease or sublease of at least one year;¹
• The sole beneficiary or beneficiaries of a trust that owns the residence; or
• The holders of majority interests in an entity (partnership, corporation, or limited liability company) that owns the residence.

Co-op and condo units are taxed in two phases: Phase One (FY 2026 – 2027)² uses existing city property tax roll valuations; Phase Two (FY 2028 and beyond) shifts to fair-market valuation that will use market comparables to value property.

Phase One: A condo unit’s value will be its market value based on the tax rolls maintained by the NYC Department of Finance. A co-op unit’s value will be calculated by multiplying the building’s total market value by the ratio of that unit’s shares to the co-op’s total shares.³

Phase One rates:

Co-ops/condos (≥$1 million):

• $1 million – $3 million: 4%
• $3 million – $5 million: 5.25%
• $5 million or greater: 6.5%⁴

One- to three-family homes (≥$5 million):

• $5 million – $15 million: 0.8%
• $15 million – $25 million: 1.05%
• $25 million or greater: 1.3%⁵

Phase Two: All taxable properties will be taxed at the Phase One rates currently used for one- to three-family homes.

Planning considerations and uncertainties

Entity and trust ownership. The statute excludes trust- or entity-held properties from the tax only under narrow conditions.

Trusts

A property will be excluded from the tax if the property is the primary residence of the sole beneficiary or beneficiaries of a trust. For the purpose of determining whether a residence is used by the sole beneficiary or beneficiaries of a trust, beneficiaries who hold only contingent or future interests will be ignored.

The sole beneficiary restriction would cause a tax to be imposed on a family trust with multiple beneficiaries that owns a residence used as a primary residence by only one of the beneficiaries. In that case, the trustees should consider whether it is possible to distribute the residence to a separate trust that would qualify for the exemption.

Entities (partnerships, corporations, and LLCs)

A property owned by an entity will be excluded from the tax if a majority of the owners use the property as a primary residence. Ownership interests can be combined for this purpose.

Combining ownership can be important when two co-owners hold an entity 50/50. So long as both owners use the property as their primary residence, it will be exempt from the tax. If one of the two members is not using the property as their primary residence (e.g., if one co-owner spouse takes the position that they live in another state for income tax purposes), the ownership would need to be rebalanced to qualify for the exclusion.

Multi-tier ownership structures

For privacy and other reasons, individuals may own properties through multiple layers of entities. Neither the statute nor the regulations address whether a look-through rule would apply to multiple layers of entities. The NYC Department of Finance, however, has stated that individuals cannot establish primary residency through multi-tier ownership structures. As a result, the pied-à-terre tax could be assessed even if the taxable property’s ultimate owner (or an immediate family member) is using the property as a primary residence. The same ambiguity also exists if the taxable property is owned by an entity that is owned by a trust.

Leaseback transactions. One important exception to the pied-à-terre tax applies when a residence is leased under a bona fide, arm’s-length lease of at least one year. This exception applies only if the lessee uses the property as their primary residence.

This exception will protect the common trust arrangement where a donor continues to live in a real property the donor has contributed to a trust if the arrangement is structured as a bona fide, one-year or multi-year lease at fair market rent. However, the lease alone will not protect the property from the tax: the exception applies only if the lessee actually uses the property as the donor-lessee’s primary residence.

Defining “primary residence.” The NYC Department of Finance has broad discretion to determine whether a property is used as a primary residence, weighing (in order of importance) tax-return address, majority-of-year occupancy, prior city filings, ID cards, and voter registration. These tests are inconsistent with the existing statutory residency rules that apply for city and state income tax purposes. Under these rules, an individual will be subject to New York State and New York City income tax in a particular year if the individual maintains a permanent place of abode in New York City and spends at least 184 days in New York City. As a result, it is possible that someone who is considered a statutory resident for city income tax purposes would not satisfy the primary residence test for purposes of determining whether the pied-à-terre tax applies – seemingly contrary to Governor Hochul’s stated goal of taxing only those who do not already pay city income tax.

Co-op mechanics. Because real estate property tax imposed on a building owned by a co-op corporation is imposed on the corporation, co-op corporations must pay the tax up front and seek reimbursement from their shareholders whose units caused the imposition of the tax. Boards are already expressing concerns: getting stuck covering wrongly flagged units, cash shortfalls if shareholders don’t reimburse promptly, and valuation distortions because share counts do not always reflect true market value. For example, units on different floors may have the same number of assigned shares but substantially different market values. Expect growing pains, including disputes between boards and shareholders over the allocation of the tax, as rollout begins.

Bottom line: With initial tax determinations due by August 30, 2026 – and only a 30-day window to appeal – property owners should not wait to act. Anyone potentially subject to the tax should begin assembling supporting documentation now to preserve a strong appeal position. Looking ahead, restructuring existing trusts or entity arrangements may also offer a path to avoid the tax in future fiscal years.

¹ N.Y.C. Admin. Code §11-3201 (definition of “Primary residence”).
² For this purpose, a fiscal year begins on July 1.
³ Id. (definitions of “Phase one market value” and “Imputed cooperative phase one market value”).
⁴ N.Y.C. Admin. Code § 11-3204(a).
⁵ Id.