October 26, 2026 / Newsletters, Publications
The New York City Pied-à-Terre Tax — An Alert for California Clients Who Own NYC Real Estate
Clients who own residential property in New York City as a secondary or investment residence should be aware of a significant new tax that has just been enacted and takes effect July 1, 2026. On May 28, 2026, Governor Kathy Hochul signed legislation imposing an annual property tax surcharge — widely referred to as the pied-à-terre tax — on certain high-value New York City residential properties that are not used as a primary residence or not leased for a term of at least one year. The tax is part of the New York state fiscal year 2026–2027 budget and is designed to run through June 30, 2031.
Who is Affected?
The tax is structured in two phases and applies to condominiums, co-operative apartments, and one-to-three family homes. During Phase 1 (July 1, 2026 through June 30, 2028), the surcharge applies to condominium and co-op units with a Department of Finance assessed market value of $1 million or more, and to one-to-three family homes with a market value of $5 million or more. The rates for condos and co-ops during Phase 1 are 4% for assessed values between $1 million and $3 million, 5.25% for values between $3 million and $5 million, and 6.5% for values above $5 million. One-to-three family homes are taxed at 0.8%, 1.05% or 1.3%, depending on assessed value. During Phase 2 (beginning July 1, 2028), the tax applies uniformly to all covered property types with a market value of $5 million or more, using comparable sales data for condos and co-ops rather than the historically depressed Department of Finance assessed values.
One important nuance of the new law: New York City’s Department of Finance has long assessed residential condominiums and co-operatives well below their actual market value — often at 10% or less of true value. The Phase 1 rates for condos and co-ops are intentionally set at higher percentage levels to account for this underassessment. The practical effect is that a Manhattan condominium with a $5 million market value may carry a Department of Finance assessed value of $500,000 or less, and may fall below the Phase 1 surcharge threshold — or, if it falls just above, be taxed at a relatively modest dollar amount. Phase 2 corrects this by switching to a comparable-sales valuation methodology, which will substantially expand both the number of affected properties and the tax burden on those already subject to the surcharge.
Application of Law to California Residents
For our California-based clients, the defining feature of the pied-à-terre tax is its targeting mechanism: the surcharge applies to any covered property that is not the owner’s primary residence. California residents who maintain a New York City apartment as a second home — whether used seasonally, for business travel, or as a family base — are squarely within the scope of this tax. The only path to exemption based on primary residency is for the owner, or an immediate qualifying family member (a spouse, child, sibling, parent, grandparent or grandchild), to occupy the property for more than half the days of the calendar year. For a California resident who cannot credibly make that showing without giving up California domicile, the exemption is not available.
Trust and Legal Entity Ownership Does Not Avoid the Tax
NYC property owned in trusts, LLCs or other entities are subject to a separate set of rules. The legislation is designed to reach through entity ownership and look to the beneficial owner’s use of the property. For example, if the property is owned by an LLC, the tax would apply unless a majority of the LLC members use the property as their primary residence. For trust-owned property, the tax would apply unless all of the current beneficiaries of the trust use the property as the beneficiaries’ primary residence. For these purposes, beneficiaries of the trust who have only contingent or future beneficial interests are ignored.