NY pied-à-terre tax needs significant rates to earn $500M

Luxury second homes in New York will have to be taxed at a "significant" amount to generate the $500 million of revenue the city is counting on to help close a gaping budget hole, according to a new study from New York City Comptroller Mark Levine's office. 

Should the new charge be structured similarly to previous proposals, the tax would yield between $340 million and $380 million in revenue, Levine's office found. 

"While the final bracket and rate schedules will differ," from the ones used to generate the comptroller's analysis, "the tax increases needed to generate $500 million in revenues appear significant." 

The proposal to tax pricey second homes was unveiled by Governor Kathy Hochul earlier this month and promised to deliver about half-a-billion dollars each year to New York City. Hochul said the tax rates would likely be crafted deliberately in order to yield the expected revenue. Those funds are crucial to closing the city's current $5.4 billion two-year budget deficit, Mayor Zohran Mamdani said. 

Dora Pekec, a spokesperson for Mamdani, disputed the comptroller's potential revenue estimate. 

"Mayor Mamdani and Governor Hochul have been clear that this pied-à-terre tax will generate $500 million in revenue annually to help close the city's inherited budget gap," she said. "The comptroller's report makes one thing very clear: thoughtfully crafting and implementing this legislation will do exactly that." 

Levine's report is the most detailed analysis yet of the number of potential properties that could be subject to a second-home tax, although the structure is still under debate as part of the state budget negotiations.

Impacted properties

The analysis looked at New York City properties that have assessed values larger than $300,000 and market values of at least $5 million to determine a universe of possible homes that would be subject to the fee. That amounted to 19,000 or roughly 1.5% of all residential properties in the city, the majority of which are located in Manhattan. 

When factoring in whether those units are used as a primary residence or if they're rented full time — the number of homes that would be subject to the tax drops to about 11,200.

If the new tax is structured similarly to prior legislative proposals, condo owners could see their annual tax bills increase between $5,200 to more than $117,000, depending on the assessed value. The median jump for all condos potentially subject to the charge is roughly $27,000 — a 40% bump over what they currently pay each year in property taxes. 

Single-family homeowners would see an even bigger increase in their property tax bills which may jump by a median of 50%, Levine's office found. 

"Comptroller Levine's analysis is yet another confirmation that a tax on second homes would not deliver the tax revenue expected," Real Estate Board of New York President Jim Whelan said in a statement. 

"This proposed tax also presents significant logistical issues as to how you identify second homes, value co-ops and condos, and account for changes in taxpayer behavior," Whelan said. "If implemented haphazardly, this tax would result in less investment, less housing and less revenue for the city, state and MTA."