The pied-à-terre surcharge is coming. It is being built on a property tax system we have known for decades is broken — and that will shape where it actually lands.
After Mayor Zohran Mamdani's first-choice new tax on the wealthy failed to gain traction in Albany, the Legislature and Governor Kathy Hochul agreed to a different approach — a new tax aimed at homes, co-ops and condos valued at or above $1 million when owners have a separate primary residence outside of New York City. Sold as a way to make absentee billionaires pay their share, the pied-à-terre surcharge passed as part of this year's budget and takes effect July 1. The politics are easy: who could object to asking the owner of a $20 million apartment who doesn't actually live there to pay about $200,000 a year in surcharge? (As you'll see, the math is more complicated than that — but the politics is what got the law passed.) The policy is harder. Because the new tax sits on top of a property tax system that almost everyone, across decades and administrations, agrees is inaccurate and unfair, it will not land cleanly where it is aimed. To see why, you have to understand a little about how the city values property in the first place.
A quick primer
Property taxes on homes, apartment buildings, commercial properties and more are the single biggest source of revenue for the City of New York, generating about $38 billion annually. Every year, the city’s Department of Finance estimates the market value of more than a million properties, and property tax bills flow from those estimates.
Houses — the one-, two-, and three-family homes the city calls Class 1 — are valued by looking at what comparable homes sell for. That is roughly how most people imagine property valuation and taxation is supposed to work.
Co-ops and condos, which make up just over 30% of the city’s housing stock, are different. By state law, the city may not value them by their sale prices. Instead, it values them by the income a comparable rental building would generate — the “income approach.” This is not a loophole or a mistake; it is the method state law requires, and it is a legitimate way to measure a building’s economic value as housing rather than as a speculative asset. But it produces values far below what these apartments actually sell for.
A condominium that would fetch $18 million on the market may carry a Finance value closer to $3 million. Multiply that across the luxury market and you get the central oddity the new tax had to work around: many of the very second homes the tax means to reach are, on the city’s books, worth a small fraction of their sale price.
Real Property Tax Law § 581, enacted in the early 1980s as part of a state effort to encourage homeownership in a city that mostly rented, requires the income approach precisely so that converting a rental building to a co-op or condo — a conversion that thousands of units underwent back then — does not trigger a steep assessment jump, thereby pricing out the residents. The law separately protects rental buildings from being assessed on what they would be worth if converted.
Both decisions are defensible, even logical. The problem is how the city has executed the law — particularly its longstanding choice to use rents from regulated buildings rather than market-rate ones as comparables even for properties that would never have been rent-regulated. This produces values whose relationship to actual market value varies unevenly across buildings and neighborhoods. The City does this because it dampens the volatility of property tax bills for regulated tenants — but it widens the already yawning gap between what a co-op or condo is worth and the rate at which it is taxed.
The one-to-three-family houses where most homeowners live, which are taxed a different way, have their own version of the same problem. State law requires these “Class 1” properties to be assessed at a uniform percentage of their full value, and separately limits how quickly assessments can rise. They can go up no more than 6% in any one year or 20% over five years. Again, both rules are defensible on their own terms. Again, the problem is the city’s execution.
For decades, Finance has set the uniform percentage in ways that produce assessments that vary widely across neighborhoods even for comparable houses.
The property tax is perverse and illogical in many more ways than these, but these explain some of its biggest problems — and why the tax’s burden disproportionately falls on owners and tenants who can least afford it.
The 2024 Court of Appeals decision in Tax Equity Now NY LLC v. City of New York (I am policy director of Tax Equity Now) held that the two requirements can operate together, and that the city must assign the same assessment for properties with the same market value. That decision opened a path the city can take on its own authority, without waiting for state legislation.
If the city actually attempted to value properties in a more disciplined way, it wouldn’t fix all of these distortions entirely, but it would move things decidedly in the right direction.
That gap — between what an apartment would sell for and what the city says it is worth — is the key to everything that follows.
What the tax does, and what it can reasonably be expected to do
The new surcharge is meant to apply only to homes that are not a primary residence and that are above a specified value threshold. For houses, that’s $5 million. For co-ops and condos, the tax arrives in two phases. This gets complicated, but stick with me.
In the first two years, the city uses its existing income-approach values, but applies high rates to compensate — 4%, 5.25%, or 6.5% — and sets the entry threshold at a $1 million in Finance value, enough to capture apartments whose true sale value is much higher, like that condo that would fetch $20 million on the market.
Beginning in 2028, the city is supposed to switch to valuing co-ops and condos by comparable sales, drop the threshold to a uniform $5 million of sale value, and apply the same lower rates that houses pay (0.8% to 1.3%). The shift brings the surcharge closer to actual sale prices and lets the city drop the awkward high-rate-low-base mechanic of Phase 1. Whether the new approach is itself a sound way to value housing is a separate question — sale prices and market value are not identical, and a properly executed income approach (using market-rate rather than regulated rents) could produce values that consistently track actual worth without rewarding speculation. Whether the city can actually build the unit-level sales-based valuation system the second phase requires is yet another question — and one of several the law leaves open, like whether every co-op and condo unit will be revalued or only those flagged for surcharge in the first place.
What can the tax reasonably be expected to do? It will raise money — though probably less than the $500 million the state projects. As the city comptroller has pointed out, owners can respond by selling, renting their places out, or moving in, and that will likely result in lower collections. The tax will fall most heavily, in dollar terms, on the ultra-high-end absentee owners the politics describe. And in its second phase it will, for the first time, try to attach a sales-based number to luxury co-ops and condos — a small preview of the broader valuation reform advocates have sought for years.
But here is where to be careful.
Beware the unintended consequences
The first two years run on a number everyone agrees is wrong. Phase one taxes apartments on the income-approach value — the very figure that critics, reformers and litigation (including a case the state’s highest court allowed to proceed in 2024) have long called inaccurate. The high 4-to-6.5% rates for co-ops and condos are an attempt to back into a fair result from an unfair number. Sometimes that will overshoot; sometimes it will miss. And because the income-approach value depends on which rental buildings the city chooses as comparables, the universe isn’t even stable: if Finance were to use higher market-rate rents as comparables — which it is permitted to do — more apartments would cross the $1 million line, pulling in owners who weren’t there the year before. There’s a lot of play in the joints.
With co-ops — a common type of home in New York but one that people across the country are often unfamiliar with, whereby all the owners in a building have shares in a corporation — it’s especially complicated. First, in Phase One, the law takes the whole building’s value and splits it by the apartment’s share of the co-op’s stock. But co-op shares were set by the building’s developer, usually by square footage and location — not by market value. So the split does not track what individual apartments are actually worth. The owner of a modest lower-floor unit can be assigned a share of building value out of all proportion to what their apartment would sell for — and a mixed-use building with valuable ground-floor retail can see that commercial value spread across the residential apartments above.
Second, in Phase Two the question is whether the city will value each apartment directly from its own comparable sales, or value the whole building by sales and then divide it up the same imperfect way. The statute doesn’t say, and the answer determines whether Phase Two will fix the allocation problem or simply re-create it on a bigger number.
Third — and most worrying — the law makes the co-op corporation the city’s collection agent, responsible for collecting the surcharge from individual shareholders. That’s risky because most proprietary leases let a co-op allocate charges only by shares, and an unpaid surcharge becomes a lien on the entire building, exposing every shareholder to one owner’s non-payment. That is a genuine legal tangle the statute leaves for others to untie.
The method of valuation in the law’s second phase makes more sense, but it’s still flawed. A sale price, which is what the law uses as the denominator to tax, and “market value” are not identical. When a single apartment sells for more than $200 million, that tells you what one extraordinarily motivated buyer would pay; with all due respect to the parties, it is not the price a rational buyer would pay, and it is not “market value” in the sense the law means — the price a typical willing buyer would pay a typical willing seller, neither under compulsion.
Using a sale like that to value the apartments around it doesn’t measure their worth; it imports a premium that has nothing to do with them. Assigning values correctly would mean screening out the outliers and the non-arm’s-length deals — painstaking, unit-by-unit appraisal work the city does not currently do for co-ops and condos at all. Is the city prepared to take this on? It’s an open question.
The administrative lift is enormous, and the clock is unforgiving. Building a defensible, sales-based valuation system for tens of thousands of co-op and condo units — on top of producing the regular assessment roll — is a multi-year undertaking, not a two-year one. Meanwhile, the first year’s mechanics are brutally tight: the city must flag non-primary homes and notify owners by August 30, 2026, with the first bill due January 1, 2027 — and the law says that even if the notice never reaches you, you still owe the tax. Expect confusion, expect a wave of challenges, and expect a Tax Commission that is already busy to strain under them.
The Department of Finance issued draft rules at the end of May, with public comments due July 9. The draft addresses some of the questions raised above — making clear, for example, that family LLC and family trust ownership structures qualify for the family-member exemption — but leaves others unresolved, including how Phase Two will identify which apartments to revalue, how the law applies to combined cooperative units, and whether and how it reaches institutional housing. The final rules will shape much of what this surcharge actually becomes.
The surcharge’s reach into institutional property is another seam worth watching. There’s yet another potential land mine in the new law. The surcharge may apply to properties that are currently exempt under a section of the law known as 420-a — university faculty housing, hospital residential property, religious institution clergy housing, foundation-owned residences — depending on how aggressively the city interprets the statute. Foreign government property is protected by federal treaty obligations, but the rest is genuinely uncertain. What this means is that a surcharge initially framed as reaching wealthy individuals with second homes could, under aggressive interpretation, extend to institutional housing the legislature likely did not mean to target. The new administration has signaled an interest in expanding the institutional tax base; whether and how that interest shapes this surcharge’s rulemaking is one of the questions that will define what it actually becomes.
Fix the foundation
None of this is an argument against asking absent owners of luxury homes to contribute more. It is about sequencing and priorities. We keep trying to bolt targeted fixes onto a property tax system whose basic foundation we have refused to repair. This is a system that values identical neighbors differently, that taxes a Brooklyn rowhouse and a Park Avenue co-op on wholly different logics, and that has resisted serious reform for 40 years. The pied-à-terre tax inherits all of that. In its first phase it runs on values whose relationship to actual market prices varies in ways that no one defends; in its second, it depends on a valuation system the city has not built.
The mayor says he is committed to property tax reform. We’ve heard mayors say as much many times, but they never get around to it because the politics are so thorny. But that remains the necessary work — and as the Court of Appeals has now made clear, much of it can be done under the city’s own authority. A surcharge layered on an uneven base will produce results that are arbitrary in ways that have little to do with who is, and isn’t, paying their fair share — and arbitrariness, in taxation, is its own kind of unfairness.
As this piece goes to press, the city has agreed in TENNY v. City of New York to enter a court-mediated settlement process aimed at the very implementation issues raised here — how the city values property, whether it can administer Class 1 assessments uniformly, how the income approach is executed for co-ops and condos. The agreement is a meaningful opening. Whether it produces real reform will depend on what the mediation actually delivers. Either way, the surcharge will continue to be administered on the existing foundation while that conversation unfolds — which makes how the foundation gets repaired even more important, not less.
I grew up in public housing in Brooklyn and later spent seven years running the department that values every property in this city. From both vantage points, the lesson is the same: a tax system earns trust by being fair. Get the foundation right, and a second-home surcharge could sit on it cleanly. Skip that step, and we will spend the next five years litigating the difference.
Disclosure: Martha Stark is policy director of Tax Equity Now New York (TENNY), the coalition whose litigation produced the 2024 Court of Appeals decision discussed above. She also advises clients and represents property owners in New York City property tax matters.
