NYC pied-à-terre owners hunt for loopholes as $5M tax deadline nears

New York City's new tax on luxury second homes has sent wealthy owners scrambling for exemptions, with roughly 7,000 already applying.

New York City's 4 percent surcharge on luxury second homes has pushed owners to hunt for exemptions, with roughly 7,000 of the 17,000 homeowners who received warning notices now applying to escape the levy.

"People call with creative solutions, only to get angry when I say it doesn't work," said Mark Goodman, an accountant who advises high-net-worth individuals at Armanino.

The tax applies to one-to-three-family second homes valued at $5 million or more and co-ops and condos worth at least $1 million, where the owner is not a primary city resident. A $12 million single-family pied-à-terre faces a $75,000 annual bill, according to the city comptroller's office. Owners are asking appraisers to prove their properties are worth less than the threshold, spotlighting wear-and-tear and missing doormen, while others hunt for long-term renters or move college-age children into the units.

The scramble has flipped real-estate norms, with luxury sales already accelerating — new contracts for the top third of the market rose 29 percent, per StreetEasy — even as lawyers warn most exemption strategies will fail this year because the tax is based on how a residence was used on Jan. 5.

A $75,000 Bill and a Jan. 5 Deadline

Mayor Zohran Mamdani extended the appeal deadline by a month to Sept. 18 after a rollout in which the Department of Finance posted a database of nearly 1 million properties, many of which are not subject to the surcharge. The city sent warning letters to about 17,000 homeowners, and 24 new civil servants were hired to handle the influx. As of Monday, 2,000 exemption applications had been filed with another 4,800 in progress, according to City Hall spokesman Matt Ruschenbach.

Accountant Goodman talked one client out of paying a stranger to pose as a full-time resident and warned others that offshore corporations in the Cayman Islands would not shield them from the levy. Some owners are considering establishing separate households — one spouse claiming the city home as a primary residence while the higher-earning partner stays in Connecticut to avoid New York's income tax. Others are rushing to sell, weighing the city's transfer tax of as much as 2.9 percent on luxury sales.

Lawyers caution that most of these moves will not work this year. The first-year tax is based on how the residence was used on Jan. 5, so moving in a family member or renter now would only count toward an exemption next fiscal year at the earliest. "There's a lack of understanding of that January 5 date," said Nicholas Montorio, an attorney with Florida-based clients who own New York City homes. "You can't just move someone in now."

The $500 Million Stakes

The tax, passed by the state in this year's budget, is expected to raise $500 million annually to help close a multibillion-dollar gap in the city's current fiscal year. Gov. Kathy Hochul had estimated it would apply to about 13,000 households. The Real Estate Board of New York, which opposed the levy, warns it will weaken the city's economy and accelerate an exodus of wealthy households to lower-tax states. The last time New York imposed a comparable levy on high-end property — the mansion tax — sales in the top tier slowed for several quarters before rebounding.

The City Council plans a hearing later this month led by Council Member Gale Brewer, who has questioned why the city used such a broad database and why it did not publish an FAQ in advance. Bills are scheduled for November, with payment deadlines in January and a final appeal window with the Tax Commission through March. For owners well above the threshold, the choice is stark: pay the surcharge, restructure their residency, or sell into a market already heating up.

This article is for informational purposes only and does not constitute investment advice.