WEEHAWKEN, NJ – OCTOBER 5: The sun rises behind buildings along Billionaire’s Row in New York City as seen from Weehawken, New Jersey on October 5, 2025. (Photo by Gary Hershorn/Getty Images)
Gary Hershorn | Corbis news | Getty Images
A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for wealthy investors and consumers. Sign up to receive future issues straight to your inbox.
New York’s proposed tax on second homes worth more than $5 million is likely to trigger costly legal battles over the valuation of the city’s most expensive properties, according to appraisers and lawyers.
The city’s so-called “pied-à-terre” tax, announced last week by New York Gov. Kathy Hochul and New York Mayor Zohran Mamdani, would impose an annual surtax on non-primary residential properties valued at more than $5 million. The governor and mayor said the levy will raise about $500 million a year to help pay the city’s budget deficit.
Officials have not released any details, including tax rates or timing. Still, real estate appraisers and lawyers say the tax is setting the stage for a massive legal battle over the valuation of high-value properties in one of the world’s most expensive markets. Because New York’s antiquated property tax system dramatically undervalues co-ops and condominiums, experts say the city needs to develop a new system for valuing high-quality second homes.
Questions include: Is it up to the property owner or the city to determine the taxable value? Do owners of two-family homes have to hire appraisers to evaluate their apartments every year? How will the city deal with the flood of legal challenges to values?
“The administrative costs have not been thought through,” said Jonathan Miller, CEO of Miller Samuel, the valuation and research firm. “This tax could create a whole new cottage industry where I can do a lot of appraisals.”
The tax is expected to be part of the state’s annual budget and still needs 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 reprimanded Mamdani on Thursday for singling out CEO Ken Griffin in his push for the tax.
Previous proposed pied-à-terre taxes included graduated, value-based rates. For example, a 2019 proposal called for 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 additional tax on the value of second homes requires two new forms of verification by the city: nonresidency 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 in the last five years. He estimates that about 70% of properties sold for more than $5 million are second homes (or even third, fifth or tenth homes).
Proving that it is not a primary residence should be straightforward using the tax returns. If the owner of a property valued at more than $5 million is not a tax resident of New York City, he or she is subject to the levy. Those purchasing condos through LLCs, which likely represents the vast majority of high-end buyers, may be difficult to identify. And since second home owners who rent to long-term renters may be exempt from the tax, some LLC owners may be able to rent to themselves and potentially avoid the tax, according to real estate experts.
The bigger problem will be valuation. According to the city’s Independent Budget Office, property taxes are the largest source of revenue for New York City, accounting for over 40% of total tax revenue in recent years. Still, the city’s valuation system values properties well below their market value. Due to a complex legal history that values certain types of properties based on their rental value, appraised values for apartments in New York City are often only a fraction of their market value.
“The assessed values are absurdly low,” said Robert Pollack, senior partner at Marcus & Pollack LLP and an expert on New York real estate taxes. “They are not representative of market values.”
Griffin’s penthouse at 220 Central Park South, which Mamdani used as a backdrop for the tax announcement, was purchased in 2019 for $238 million. However, according to Pollack, the city puts the value at $6.99 million and puts the market value at $15.5 million. According to the city’s current values, only a few apartments in the building, which is one of the most expensive in the city, would have to pay the pied-à-terre tax.
The 2019 Pied-à-Terre proposal stipulated that valuations should be based on current sales prices. However, agents said using current sales prices can distort values because every home is different and markets change quickly. To reach the $500 million a year revenue target for the new tax, city officials will likely need to create a new system for determining market value, experts say.
Miller said one possibility would be for property owners to receive regular appraisals, which would create a flood of demand for appraisal companies like his.
“I would like to see every apartment in New York City undergo an annual assessment,” he said.
Even with owner valuations, however, there will be pressure to value homes just below the nearest tax threshold. To avoid the tax, for example, a large number of apartments worth $4.98 million could be built. Or someone who owns a home worth $26 million could have it appraised at $24.9 million to avoid the top tax rate of 4%.
“You could have ended up with these large clusters of assessments in every tax bracket,” Miller said.
Get Inside Wealth straight to your inbox
Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.