New York City’s tax on second homes exceeding certain market values, also known as the “pied-à-terre” tax, took effect on July 1, 2026. The law is set to sunset on June 30, 2031, unless extended. 

Effective July 1, 2026, a pied-à-terre Tax (PAT) applies to “covered owners”, including cooperative and condominium units, that are not the owner’s primary residence and are not entitled to other exemptions. The PAT is a tax surcharge in addition to the owner’s real estate taxes. 

Tax Rates:

The PAT is being implemented in two phases. 

Phase 1:

For tax years 2026/27 and 2027/28, the tax applies to single-family and one- to three-family homes (Class 1 property) and residential condos and co-ops (Class 2 property), as follows:

Class 1 home tax rates:

• Market value between $5 million and $15 million = 0.8%
• Market value between $15 million and $25 million = 1.05%
• Market value over $25 million = 1.3%

Class 2 co-op and condo tax rates:

• Market value between $1 million and $3 million = 4%
• Market value between $3 million and $5 million = 5.25%
• Market value over $5 million = 6.5%

In this first phase, the “market value” for Class 1 properties is based on comparable sales calculated on a running average based on sales during the immediately preceding five years. The “market value” for Class 2 properties is calculated based on the current DOF assessments translated into market values, which are not based on comparable unit sales.

Please note that the DOF notices sent to condos and co-ops may use the terminology of “market value,” but for Phase 1, the DOF will be using the assessed value when making its determination.

In a cooperative, whose owners do not have separate tax lots, this means applying the “market value” of the entire building to the ratio of the number of shares attributable to the individual apartment over the total number of shares.

Phase 2:

For the 2028/2029 tax year, the tax applies to single-family and one- to three-family homes (Class 1 property) and residential condos and co-ops (Class 2 property), as follows:

• Market value between $5 million and $15 million = 0 8%.
• Market value between $15 million and $25 million = 1 05%.
• Market value over $25 million = 1 3%.

In this second phase, the “market values” for Class 1 properties will remain the same as previously calculated, but Class 2 properties will shift to “market values” based on sales of comparable units.

Notices sent to Co-ops:

The DOF is sending separate notices both to the building and directly to those individual apartments within the building that the DOF believes may be covered by the PAT. The DOF notice sent to the co-op contains a list of the individual covered apartments, and we advise that the co-op independently notify these affected shareholders immediately via certified mail (return receipt requested), regular first-class mail, and e-mail if an e-mail address was provided.

The DOF notice also offers the co-op an opportunity to apply for exemptions on behalf of its covered shareholders. But at this time, for a myriad of reasons, we think it’s best for the shareholder to handle their own exemption application.

Who is covered?

A property’s primary residence status will be based on the owner’s taxable status as of January 5th of the previous fiscal year. Accordingly, the status for the 2026/2027 tax year will be based on the owner’s taxable status as of January 5, 2026.

The law requires the DOF to make its determinations based on the data available to it and to send notice to owners before August 30, 2026. The DOF started sending notices at the end of July 2026.

The following properties are exempt from the PAT:

• The property/apartment is owned by a natural person and occupied by that person or an immediate family member (spouse, child, sibling, parent, grandparent, or grandchild) as their primary residence.
• The property/apartment is leased for at least one year to an arm’s length lessee (a natural person) who maintains the apartment as their primary residence (the lease and occupancy must be in effect as of January 5th of the immediately preceding fiscal tax year).
• The property/apartment is owned in a trust, and the beneficial owner(s) of the trust occupy the apartment as their primary residence so long as the beneficial owner(s) are the sole beneficiaries of such trust.
• The property/apartment is owned by a partnership, corporation, or LLC and the apartment is the primary residence of one or more individuals who collectively hold a majority interest in the owner.

Property owners wishing to contest or submit an exemption from the PAT must file by September 18, 2026. Please note that the DOF notices contain the original August filing date, but that date has been extended.

To see if your property is exempt, please go to the following link: https://www.nyc.gov/site/finance/property/non-primary-residence-surcharge.page

The specific documents you must provide when applying for an exemption will depend on who is using the property as a primary residence. As of this writing, the DOF is asking for the following documents:

Primary residence documents:

All owners applying for an exemption from the surcharge will be asked to provide the following for each occupant you identify as using the property as a primary residence: Most recently filed federal or state tax return.

If a tax return is not available, you can provide any two of the following three items:

• Driver’s license or other DMV-issued identification.
• Voter identification card.
• Other proof showing that the property is your primary residence.

Tenant documents:

If the property is the primary residence of a tenant or subtenant, you will be asked to provide the primary residence documents listed above, as well as:

• A copy of the current lease and one additional rental document, such as a utility bill, proof of rent payment, or renter’s insurance policy; OR
• A DOF form of Tenant or Subtenant Affidavit and two additional rental documents.

Immediate family member:

If the property is the primary residence of an immediate family member of the owner or majority interest holder, you will be asked to provide the primary residence documents listed above, as well as documentation proving the family relationship. 

• Birth certificate.
• Marriage certificate.
• A DOF form of Immediate Family Member Affidavit Form.

Business entity:

If the property is owned by a business entity (such as an LLC, corporation, trust, or partnership) and is used as a primary residence by a majority member, shareholder, beneficiary, or partner, you will be asked to provide the primary residence documents listed above.

In addition, you must provide:

• Partnership agreement, trust agreement (or a DOF form of trustee affidavit), LLC operating agreement, or certificate of incorporation.
• A DOF form of Majority Interest Affidavit.

Cooperative Considerations:

A cooperative building, unlike a condominium, has only one tax lot, resulting in the PAT being assessed against the entire building. The DOF will send its bill to the cooperative, and it is the responsibility of the cooperative to identify which apartments are subject to the PAT. However, if a particular shareholder does not pay the PAT, the DOF can charge interest and place a tax lien on the entire building. Most proprietary leases, in their current form, do not provide boards with the ability to individually charge back a shareholder the PAT and related interest.

There are additional concerns. To qualify as a cooperative housing corporation, Internal Revenue Code § 216 requires that there be only one class of shares and Business Corporation Law § 501(c) requires that each share shall be equal to every other share. Maintenance and assessments are charged on a per-share basis, ensuring this one-class system. While the Internal Revenue Code includes a carve-out for taxes that allows boards to charge real estate taxes to a shareholder based upon separate allocations (and presumably, would allow for the PAT to be allocated to a specific shareholder), the Business Corporation Law does not. Although one may argue that the PAT and related interest are no different than other cooperative charges for which only particular shareholders are subject and not calculated on a per share basis (i.e., a sublet fee or a dog registration fee), it’s too early to tell if the DOF and the courts will agree.

Cooperatives have a lot to consider  . . . . Including: 

• If the proprietary lease does not provide for bill-back of the PAT, can a cooperative commence a non-payment proceeding against a non-paying PAT shareholder?
• If the cooperative is stuck with the PAT from a non-paying shareholder, will the board be forced to assess the entire building?
• Will a PAT-related lien on the building place the cooperative in default of its underlying mortgage?

What is a Co-op to do?

It would be best to amend the co-op’s proprietary lease.

The Board should consider the following:

•    Requiring shareholders to pay their PAT. 
•    Categorizing a shareholder’s default in the payment of his/her PAT as a default under the lease and outlining the co-op’s remedies in such an event. 
•    Providing for indemnification of the co-op and its fellow shareholders by a shareholder who has failed to timely pay its PAT, including any fines, penalties and interest assessed in connection therewith. 
•    Conditioning the co-op’s approval to any transfer upon payment of the PAT. 
•    For those shareholders that own their shares in the name of a trust or an LLC, perhaps waiving the co-op’s transfer fee (flip tax) to permit such shareholders to transfer ownership back to them personally.

If you have questions about the impact of the PAT on your co-op, condo, or other residence, please connect directly with Scott at sms@gdblaw.com.