WEEHAWKEN, NJ – OCTOBER 5: The sun rises behind the buildings along Billionaire's Row in New York City on October 5, 2025, as seen from Weehawken, New Jersey. (Photo by Gary Hershorn/Getty Images)
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A version of this article first appeared in CNBC's Inside Wealth newsletter with Robert Frank, a weekly guide for high-net-worth investors and consumers. Register to receive future issues, directly 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, according to appraisers and lawyers.
The city's so-called “pied-à-terre” tax, announced last week by New York Governor Kathy Hochul and New York City 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 tax will raise about $500 million a year to help pay for the city's budget deficit.
Officials have not released any details, including tax rates or timing. However, 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 world's most expensive markets. Because New York's antiquated property tax system dramatically undervalues co-ops and condominiums, experts said the city will have to come up with a new system for valuing luxury 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 appraise their apartments each year? How will the city handle the avalanche of securities legal challenges?
“The administrative costs have not been well thought out,” said Jonathan Miller, chief executive of Miller Samuel, the assessment and research company. “This tax could start 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 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 rebuked Mamdani for singling out CEO Ken Griffin in his push for the tax.
Previously 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% on $10 million and 4% on $25 million.
Imposing a new additional tax 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 apartments in Manhattan sold for $5 million or more in the last five years. He estimates that around 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 rolls. If the owner of property over $5 million is not a New York City tax resident, he or she will be subject to the lien. Those who purchase condos through LLCs, who are likely the vast majority of high-end buyers, can be difficult to identify. And since second-home owners who rent to long-term tenants may be exempt, some LLC owners could rent to themselves and possibly avoid the tax, according to real estate experts.
The biggest problem will be the valuation. Real estate taxes are the largest source of revenue for New York City, accounting for more than 40% of total tax revenue in recent years, according to the city's Independent Budget Office. However, the city's appraisal system values properties well below their market value. Thanks to a complex legal history that values certain types of real estate based on their rental value, the assessed values of New York City apartments are often a fraction of their market value.
“The assessed values are absurdly low,” said Robert Pollack, senior partner at Marcus & Pollack LLP and a New York real estate tax expert. “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. However, the city values it at $6.99 million and its market value is $15.5 million, according to Pollack. Few 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 required valuations to be based on recent sales prices. However, brokers said that since every apartment is different and markets change quickly, using recent sales prices can distort 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 homeowners to get regular appraisals, which would create a flood of demand for appraisal companies like his.
“I would love for every apartment in New York City to have an annual appraisal,” he said.
However, even with owner appraisals, there will be pressure to value apartments just below their nearest tax thresholds. There could end up being a large number of apartments valued at $4.98 million, for example, to avoid the tax. Or someone with a $26 million apartment could get it appraised at $24.9 million to avoid the top 4% rate.
“You could have ended up having these large groups of assessments in each tax bracket,” Miller said.
