New York’s pied-a-terre tax sets up legal fight over values

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New York’s proposed tax on second homes worth more than $5 million is likely to spark costly legal battles over how to value the city’s most expensive real estate, according to appraisers and attorneys.

The city’s so-called “pied-à-terre” tax, announced last week by New York Gov. Kathy Hochul and New York City Mayor Zohran Mamdani, would impose an annual surtax on non-primary residential real estate worth more than $5 million. The governor and mayor said the levy will raise about $500 million a year to help pay off the city’s budget deficit.

Officials haven’t released any details, including the tax rates or timing. Yet real estate appraisers and attorneys said the tax sets the stage for a massive legal fight over how to value high-end real estate in one of the most expensive markets in the world. Because New York’s antiquated property tax system dramatically undervalues co-ops and condos, experts said the city will have to come up with a new system for valuing  high-end second homes.

Among the questions: Will it be up to the property owner, or the city, to set the taxable value? Will pied-à-terre owners have to hire appraisers to value their apartments every year? How will the city handle the barrage of legal challenges over values?

“The administrative costs haven’t been thought through,” said Jonathan Miller, CEO of Miller Samuel, the appraisal and research company. “This tax could give birth to a whole new cottage industry, where I get to do a lot of appraisals.”

The tax is expected to be part of the state’s annual budget and still has to be approved by the state legislature. It faces strong opposition from the real-estate industry and similar proposals have failed in the past. Citadel on Thursday rebuked Mamdani for singling out CEO Ken Griffin in his push for the tax.

Previous proposed pied-à-terre taxes included graduated rates based on value. A 2019 proposal, for example, imposed a 0.5% tax on the value of a pied-à-terre over $5 million, 1.5% over $10 million and 4% over $25 million.

Imposing a new surtax on the value of second homes will require two new forms of verification by the city: non-residency and value. Hochul estimates that about 13,000 non-primary homes in New York City valued at $5 million or more will be subject to the tax.

Miller said 4,146 Manhattan apartments sold for $5 million or more over the past five years. He estimates that about 70% of properties sold for $5 million-plus are second homes (or even third, fifth or 10th homes).

Proving nonprimary residence should be…