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 Hershawn/Getty Images)
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A version of this article first appeared in CNBC’s Inside Wealth newsletter by Robert Frank, a weekly guide for high-net-worth investors and consumers. Sign up to receive future editions directly to your inbox.
New York City’s proposed tax on second homes worth more than $5 million is likely to spark costly legal battles over how the city’s most expensive properties are valued, appraisers and lawyers say.
The city’s so-called “pied-à-terre” tax, announced last week by New York Gov. Kathy Hochul and New York City Mayor Zoran Mamdani, would impose an annual surtax on non-primary residential properties worth more than $5 million. The governor and mayor said the levy would raise about $500 million a year to help cover the city’s budget deficit.
Authorities have not disclosed details such as tax rates or timing. But appraisers and lawyers said the tax would set the stage for a major legal battle over how luxury real estate is valued in one of the world’s most expensive markets. New York City’s outdated property tax system significantly undervalues co-ops and condominiums, so experts say the city needs to devise a new system for valuing luxury second homes.
Among the questions: Will the property owner or the city set the taxable value? Will pied-à-terre owners have to hire an appraiser every year to assess the value of their apartments? How will the city respond to the barrage of legal challenges surrounding the valuation?
“Administrative costs are not taken into account,” said Jonathan Miller, CEO of appraisal and research firm Miller Samuel. “This tax could create a whole new cottage industry, and I can do a lot of evaluation there.”
The tax would be part of the state’s annual budget, but must be approved by the state Legislature. Similar proposals have failed in the past, facing strong opposition from the real estate industry. Citadel on Thursday accused Mamdani of naming CEO Ken Griffin in pushing for tax increases.
Previously proposed pied-à-terre taxes included graduated tax rates based on value. For example, a 2019 proposal would have imposed a 0.5% tax on pied-à-terres worth more than $5 million, 1.5% on more than $10 million, and 4% on more than $25 million.
Imposing a new surtax on the value of a second home would require two new forms of proof from the city: non-residentiality 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 have sold for more than $5 million in the past five years. He estimates that about 70% of properties sold for $5 million or more are second homes (or third, fifth, or 10th homes).
It should be easy to prove residence other than your home base based on your tax records. If the owner of a property valued at $5 million or more is not a New York City tax resident, it is subject to tax. People who purchase condos through LLCs are likely the majority of luxury buyers, but they can be difficult to identify. Also, real estate experts say second home owners who rent to long-term tenants may be exempt, so some LLC owners may be able to avoid the tax by renting out themselves.
An even bigger problem is evaluation. According to New York City’s Independent Budget Office, real estate taxes are New York City’s largest source of revenue, accounting for more than 40% of total tax revenue in recent years. But the city’s valuation system puts the property’s value far below market value. Thanks to the complex legal history of valuing certain types of real estate based on rental value, appraised values for New York City apartments are often a fraction of market value.
“Valuations are unusually low,” said Robert Pollack, a New York real estate tax expert and senior partner at Marcus & Pollack. “They do not represent market value.”
Mr. Griffin’s penthouse at 220 South Central Park, which Mr. Mamdani used as the backdrop for his tax announcement, was purchased in 2019 for $238 million. But the city valued it at $6.99 million, putting the market value at $15.5 million, Pollack said. Even among the city’s most expensive apartments, few would have to pay the pied-à-terre tax at the city’s current values.
The 2019 pied-à-terre proposal called for valuations to be determined based on recent sales prices. But brokers said each apartment is unique and the market changes quickly, so using recent sales prices could skew the value. To meet the new tax’s revenue goal of $500 million a year, city officials will likely need to create a new system for determining market prices, experts said.
Miller said one option would be for property owners to have regular appraisals, which would create a flood of demand for appraisal companies like his.
“I would be very happy if every apartment in New York City was evaluated every year,” he said.
But even with an owner appraisal, there would be pressure to lower the appraised value of apartments to just below the nearest tax threshold. For example, there could be a ton of apartments worth $4.98 million to avoid taxes. Alternatively, someone with a $26 million apartment could have it appraised at $24.9 million to avoid the top 4% interest rate.
“You could end up with these big clusters of assessments around each tax bracket,” Miller said.
