New York City’s pied-à-terre tax is advancing without clear guidance, leaving homeowners, lawyers, and real estate agents uncertain about its implementation. The Department of Finance hosted a public hearing Thursday to collect feedback on the new surcharge, but critical details remain unresolved.
Owners criticize the tax as unfair
Peter Blond, a partner at Brandt, Steinberg, Lewis & Blond LLP, described the surcharge as unfair and poorly planned. He highlighted a major issue: when a single unit owner undergoes a costly renovation, such as a $20 million penthouse overhaul, co-op boards cannot prevent other shareholders from facing higher assessments.
“DOF practice in a cooperative setting leaves no option when assessing a physical alteration,” Blond stated. “The entire ownership group is penalized for one owner’s renovation.”
The first determinations of tax liability are due by August 30, though a DOF official did not disclose when final rules would be released. The lack of clarity has raised concerns about timing and potential mistakes.
Concerns over deadlines, trusts, and new buyers
Rebecca Poole, director of membership and communication for the Council of New York Cooperatives and Condominiums, warned that the 30-day response window for tax notices could cause issues. Many residents are away during late summer, making it hard to meet the deadline.
Related: Aby Rosen’s Delvey building sells to mystery investor
Poole recommended extending the response period to 60 days for notices sent before August ends. She also suggested sending a second notice to those who do not reply within 30 days to reduce errors in determining primary residence during the initial rollout.
Other speakers addressed unusual cases. Warren Dubitsky, an attorney at Herman Katz, argued the rules should protect buyers who purchase a property previously used as a pied-à-terre but plan to make it their main home. The law’s six-year lookback and audit provision could penalize new owners for past use, even if they never treated the home as a secondary residence.
Dubitsky also noted risks for buyers during renovations. A property might be uninhabitable when purchased, yet the owner could still face penalties.
Trusts add another layer of complexity. Zal Kumar, a tax principal at Ernst & Young, said couples who own homes through trusts should retain primary residence status. The same should apply when a spouse or parent dies, leaving a sole occupant as the beneficiary. Indirect ownership via an LLC, he added, should not disqualify a trust beneficiary from claiming the property as their primary home.
Co-op owners face valuation challenges. K. Burke, a resident, said the DOF’s method for determining unit value is unclear. “There’s been no recent sale to reference,” he explained. “We need clear information to understand potential liability.”
Related: Primary Winners Set to Transform Real Estate
Burke requested a website with simple explanations of how valuations work. Without it, owners cannot estimate their tax burden.
The tax aims to address wealthy non-residents who own second homes but do not support local services. However, the rollout has revealed gaps in handling real-world situations like trusts, renovations, and inherited properties. Many owners remain in limbo.
Dubitsky proposed that the city base its notices on existing property assessments but adapt them for pied-à-terre owners. This could help clarify calculations and dispute options.
The August 30 deadline is near, and without final rules, the first notices may arrive unexpectedly.