WEEHAWKEN, NJ – OCTOBER 5: The sun rises behind buildings along Billionaire’s Row in New York on October 5, 2025, as seen from Weehawken, New Jersey. (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. Register to receive future editions, straight to your inbox.
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, appraisers and lawyers say.
The city’s so-called pied-à-terre tax, announced last week by New York Governor Kathy Hochul and New York Mayor Zohran Mamdani, would impose an annual surcharge on non-primary residential real estate worth more than $5 million. The governor and mayor said the levy would raise about $500 million a year to help close the city’s budget deficit.
Officials have not released any details, including tax rates or the timeline. Still, real estate appraisers and lawyers said the tax sets the stage for a massive legal battle over how to value high-end real estate in one of the world’s most expensive markets. Because New York’s outdated property tax system significantly undervalues co-ops and condominiums, experts said the city will need to come up with a new system for valuing high-end second homes.
Among the questions: Will it be up to the owner, or the city, to set the taxable value? Will pied-à-terre owners need to hire appraisers to evaluate their apartment every year? How will the city handle the deluge of legal challenges over the values?
“The administrative costs have not been thought through,” said Jonathan Miller, CEO of Miller Samuel, the appraisal and research firm. “This tax could give rise to a whole new cottage industry, where I could do a lot of assessments.”
The tax is expected to be part of the state’s annual budget and must still 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 chastised Mamdani for singling out CEO Ken Griffin in its push for the tax.
Previously proposed taxes for pied-à-terre included progressive rates based on value. A 2019 proposal, for example, imposed a tax of 0.5% on the value of a pied-à-terre above $5 million, 1.5% above $10 million, and 4% above $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-prime housing units in New York City, valued at $5 million or more, will be subject to this tax.
Miller said 4,146 apartments in Manhattan have sold for $5 million or more in the past 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 non-primary residence should be simple, based on the tax roll. If the owner of a property over $5 million is not a New York City tax resident, they will be subject to the levy. Those who purchase condos through LLCs, who likely make up the vast majority of high-end buyers, can be difficult to identify. And because second-home owners who rent to long-term tenants may be exempt, some LLC owners might be able to rent on their own and possibly avoid the tax, real estate experts say.
The biggest problem will be valuation. Property taxes are New York City’s largest source of revenue, accounting for more than 40 percent of total tax revenue in recent years, according to the city’s Independent Office of the Budget. Yet the city’s assessment system values properties well below market value. Thanks to a complex legal history that values certain types of real estate based on their rental value, the assessed values of apartments in New York 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 property taxes. “They are not representative of market values.”
Griffin’s penthouse at 220 Central Park South, which Mamdani used as a backdrop to announce the tax, was purchased in 2019 for $238 million. Still, the city values it at $6.99 million and its market value at $15.5 million, according to Pollack. Few of the apartments in the building, among the most expensive in the city, would have to pay the pied-à-terre tax based on current city values.
The 2019 pied-à-terre proposal called for assessments to be based on recent sales prices. Still, brokers said that because every apartment is different and markets move quickly, using recent sales prices can skew values. To meet the $500 million-a-year revenue goal for the new tax, city officials will likely have to create a new system for determining market values, experts say.
Miller said one option would be for property owners to get regular appraisals, which would create a flood of demand for appraisal companies like his.
“I would be delighted if every apartment in New York had to have an annual assessment,” he said.
However, even with landlord assessments, there will be pressure to value apartments just below their nearest tax threshold. There could be a large number of apartments valued at $4.98 million, for example, to avoid the tax. Or, someone with a $26 million apartment could have it appraised at $24.9 million to avoid the top rate of 4%.
“You could have ended up having these large groups of assessments around each tax bracket,” Miller said.