Policy Pro: Lawyers warn buyers could inherit sellers’ pied-à-terre tax bill
Growing chorus asks city to include purchaser protections in proposed rules
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Buyers of New York City’s priciest pads could inherit an expensive surprise under tax officials’ proposed rules for the pied-à-terre fee. Real estate attorneys say the Department of Finance’s rules as drafted could saddle purchasers with a former owner’s bill years after closing.
The DOF’s rules include a six-year window to audit documents and reassess if taxes are owed. But the property could have changed hands in that window and legal experts argue that the rules leave a gray area for the city to saddle purchasers with a former owner’s unpaid pied à-terre tax, which targets up to 13,000 second homes valued at or over $5 million.
During a Thursday virtual hearing on the city’s proposed rules, attorneys urged tax officials to add what’s known as an innocent purchaser provision that would shield buyers from liabilities incurred before they took ownership — a mechanism already used in other city tax programs.
“The rules should address real-world timing issues,” said Benjamin Williams, who leads the property tax department at Rosenberg & Estis. “A buyer who purchases a covered property and uses it as a primary residence should not be penalized because of a prior owner’s use.”
Warren Dubinsky, partner at Herman Katz, questioned the lack of buyer protections.
“What safeguards are there so that an innocent purchaser isn’t hit with this tax?” said Dubinsky, who also chairs the tax law committee at the New York City Bar Association. “How can they ensure that they will not be later hit with a penalty for prior actions or the residency status of the prior owner?”
The questions are among several concerns tax experts and real estate professionals have raised as the city moves to implement the complex surcharge on a tight timeline. More than 100 people joined Thursday’s hearing — an unusually high turnout for an administrative proceeding — to offer feedback or gripe about the rules.
The word of the day was “clarity,” as industry professionals pressed the city for more guidance on everything from how a primary residence is defined to the mechanisms co-ops can adopt to collect the tax from shareholders and how property valuations will be determined.
In tense testimony, Peter Blond, a partner at Brandt, Steinberg & Lewis, called the pied-à-terre tax a “half-baked money grab.”
State lawmakers and Gov. Kathy Hochul approved a pied-à-terre for New York City as part of the state’s budget in late May. The timing gave city tax officials just weeks to craft rules getting the tax off the ground for the 2027 fiscal year, which began in July.
By the end of August the city will notify owners whose New York City homes were deemed non-primary residences as of January 2026, and that they could owe the surcharge on their next tax bill due January 2027.
Owners will have 30 days to prove either that they live there more than half the year or that they’re eligible for one of the exemptions, including if a family member occupies the unit or if they rent out the property to a tenant who occupies it year-round. Several commenters argued that the 30-day window to prove residency is too short.
State law passed in the budget requires that tax officials roll out the surcharge in two phases.
For the first two years, single-family homes assessed at $5 million or more will pay a 0.8 to 1.3 percent surcharge. Because the city assesses co-ops and condos well below their market value, the tax will initially apply to units with assessed values of at least $1 million, which will face surcharges between 4 and 6.5 percent.
Starting July 1, 2028, the city will switch to a sales-based valuation system for co-ops and condos. At that point, all second homes valued at $5 million or more will be taxed at rates between 0.8 percent and 1.3 percent.
Department of Finance spokesperson Ryan Lavis did not respond to questions on when the city intends to finalize the rules and whether it would hold an additional hearing for industry feedback if the agency decides to substantially amend its proposed rules.
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