A new tax surcharge on the second homes of wealthy part-time residents of New York City would initially target co-ops and condos that have at least $1 million in “market value,” a bureaucratic metric that often vastly understates a home’s actual worth.
The proposed second-home tax plan, which Gov. Kathy Hochul proposed to state legislative leaders on Thursday, would be instituted in two phases. For the next two years, second homes with a “market value” of $1 million or more will face a tax surcharge between 4 percent and 6.5 percent — in addition to their existing property tax obligations.
But because the so-called market value diverges from a property’s actual sales value, especially at the highest end of the market, it is unclear how many homes would be affected by the tax.
The governor’s office claims that a $1 million “market value” is the equivalent to a sales value of about $5 million. But the disparity is often even more pronounced. One Midtown Manhattan penthouse that has a current market value of about $4.2 million sold in 2024 for more than $135 million.
And in an example cited by the governor’s office, a second-home condominium with a sales value of $18.5 million might have a “market value” of $1.1 million. Under the proposed tax, the owner would pay a surcharge of $45,115, or 4 percent of that value.
The details of the new tax, which Ms. Hochul hopes will raise $500 million annually for New York City, have been challenging to finalize and will remain contentious.
Jason Haber, a residential real estate broker and co-founder of the American Real Estate Association, contended that the construct was unnecessarily baroque.
“I know we just sent people around the moon and back, so you’d think anything is possible,” Mr. Haber said. “But because of how the city tax system is set up, this is crazy complicated in the first place. And they tried to rush it though I think without fully appreciating its complexity.”
The proposed tax’s second phase only adds to the complications.
After the initial two years, the city and state would begin using a different method to determine which properties would be subject to the tax surcharge. That metric would be partly based on the estimated sales values of condos and co-ops — which would require adding a new valuation system to New York City’s already byzantine machinery.
For those units, Ms. Hochul is proposing a tax rate of 0.8 percent for units with a sales value of $5 million to $15 million; a rate of 1.05 percent for units valued between $15 million and $25 million; and a top rate of 1.3 percent for apartments worth $25 million and above. One- to three-family homes, which are already assessed by the city using comparable sales, would be taxed at these rates immediately after the proposal takes effect.
Jen Goodman, a spokeswoman for Ms. Hochul, said that the added revenue this tax is projected to raise will “protect the services millions of families rely on.”
“We’re asking some of the wealthiest people in the world to contribute a bit more to generate targeted revenue while avoiding unintended consequences for New York’s tax base,” Ms. Goodman said.
The new tax on so-called pieds-à-terre has been the talk of the New York political world since Ms. Hochul announced it in April. The idea was a last-minute addition to the state budget, which is now more than a month late, and the amount of money it is expected to raise falls well short of what the tax-the-rich contingent had been clamoring for.
Even so, Mayor Zohran Mamdani cast the proposed tax as an example of how he was delivering on his promise to tax the rich, appearing in a video outside the home of one billionaire and telling him to pay up.
Ms. Hochul took a more measured approach. She framed the proposal as a middle-of-the-road idea that would not cause rich individuals and businesses to flee the state, but would still create a sustained revenue stream from extremely wealthy part-time residents that would help the city close its budget deficit.
The proposal contains an exemption for individuals buying second apartments in the city for family members to occupy, according to the governor’s office.
The debate over a second-home tax gained steam in 2019 after the billionaire financier Kenneth Griffin bought a penthouse for $238 million — at the time, the most expensive home sale on record in the United States. But the purchase also illustrated the city’s arcane way of establishing “market value”; according to city records, it had a value of about $15.5 million.
The reason for the discrepancy is that, under a state law passed in the 1980s, the city is required to compare co-ops and condos to rentals of similar size and age, assessed on the potential income those rentals might bring in. But the highest-end condos and co-ops do not have clear rental equivalents, which drags down their calculated market values; in some cases, these high-priced condo buildings are even compared to rental buildings with rent-regulated units.
The specifics of the governor’s proposal were still being furiously worked out in the days after Ms. Hochul announced last week that she had reached a “general agreement” on the state’s budget with legislative leaders.
Andrea Stewart-Cousins, the State Senate majority leader, told reporters as recently as Tuesday that neither Ms. Hochul nor her aides had shared more details about the new tax with Albany lawmakers, who must sign off on the plan’s inclusion in the budget.
The State Assembly speaker, Carl Heastie, said on Thursday, “I have an idea of it, but I don’t know the exact details.”
It comes as legislative leaders mull another new tax on the sale of New York City homes that cost at least $1 million and are purchased in cash, two people familiar with the matter said. The proposal, which was first reported by Bloomberg, is projected to raise $160 million per year.
Real estate leaders have argued that they need predictability to be able to move ahead with developments and that changing the taxation system after two years does not provide the necessary clarity.
“Tax policy drives behavior, and this tax, and the way it is designed, will discourage investment, stall housing production and cost thousands of jobs,” James Whelan, the president of the Real Estate Board of New York, said in a statement.
A report about the tax released last month by the New York City comptroller, Mark Levine, warned that the amount of money the city can collect through the tax may be reduced if people choose not to have second homes in the city. It could also drop if the second homes are actually being rented to city residents, which is not always captured in government projections.
The report suggested that the city’s Finance Department would most likely have to audit property owners’ claims about who lives or doesn’t live in any apartment. The report noted that “lapses” in the auditing capacity and accuracy “would reduce revenues and multiply taxpayers’ appeals and lawsuits.”
The report also said that it might be difficult to tax units that were owned by limited liability companies or trusts, among other potential pitfalls.
“Each of these decisions can shift collections by tens of millions of dollars,” the report said.
Benjamin Oreskes is a reporter covering New York State politics and government for The Times.
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