A simplified overview:
Both Mayor Mamdani and Governor Hochul want to impose a yearly surcharge tax on second homes in New York City that are valued at $5 million or more. They feel it’s long overdue for the ultra-wealthy to contribute more to society. The city is experiencing a budget deficit of over $5.4 billion, and proponents of the bill estimate this additional tax on the upper echelon of real estate investors can add $500 million annually to the city’s depleted coffers. (Other qualified number-crunchers believe the tax revenue will be considerably less, closer to $350 million.)
Now here’s where things get tricky…
A complicated reality:
Determining the accurate assessed value of second homes opens up a Pandora’s box of variables. Many of the trophy condos lining West 57th Street and clustered around Central Park are clearly valued at $5 million and much higher -- and could bring in more than $100 million in taxes annually. But for the majority of high-end condo and co-op pied-à terres that may be targeted for this surcharge, there’s very little correlation between a property’s assessed value and its actual market value. Bottom line: early estimates of the number of properties that can be taxed are overly optimistic.
Who will feel the pied-à-terre “pinch”?
--The prime focus of this bill would be individuals whose primary residences are outside the state.
--People who live in New York state but have a second $5-million-plus residence in the city would also be taxed. (do I sense a loophole here?)
--Second homes that are rented full-time to tenants would not be taxed.
-- It is unclear if New York City residents who own two apartments in the city would be taxed.
--Still to be explored: how the city and state would determine if homes purchased under an LLC agreement or part of a trust qualify as primary residences or second homes.
How much will homeowners pay?
--The surcharge would most likely be a sliding scale based on the value of the property. A $25 million penthouse would face a larger surcharge than a $5 million two-bedroom.
--While the proposed pied-à-terre tax proposal is still in a formative stage, tax rates are estimated to range from .5% - 4% of the excess market value over $5 million.
--Prior tax requirements will remain in place: City and State Transfer Fees, Mansion Tax on properties valued over $1 million, annual Real Estate Taxes, in addition to Mortgage Taxes.
The Pied-à Terre “climate.”
Demand for second homes is down nationwide amid high interest rates, lofty home prices and a shift back to working in the office. In New York City, stricter short-term rental rules and a drop in foreign buyers may also have an impact on the pied-à-terre market.
The pied-à-terre tax is percolating with a flurry of opinions. Yes, the city’s bank account needs a tremendous cash infusion – just ask the New York City Comptroller Mark Levine. Owners throughout the city will claim that they don’t benefit from the public school system, ride the subway or participate in food assistance. They ask: “Don’t we pay enough in taxes?”
It’s not clear when this second home proposal will reach the desks of legislator’s in Albany. I’ll keep you updated, for sure!
