New York City’s proposed tax on second homes worth more than $5 million is expected to lead to legal battles over property valuation, according to experts. The “pied-Ã-terre” tax, announced by Gov. Hochul and Mayor Mamdani, aims to raise $500 million annually to address the city’s budget deficit. However, appraisers and attorneys anticipate challenges in valuing high-end real estate due to the city’s outdated property tax system, which undervalues co-ops and condos.
The tax, which has not disclosed specific rates or details, may require property owners to determine taxable values and hire appraisers regularly. The real estate industry opposes the tax, which must still be approved by the state legislature. Previous proposals based on property value have failed in the past.
Applying a surtax on second homes valued at $5 million or more would necessitate verifying non-residency and value. About 13,000 non-primary homes in NYC could be subject to the tax, with around 70% of properties sold for $5 million or more being second homes. Identifying non-primary residences should be straightforward, but valuing properties accurately presents a challenge due to the city’s assessment system undervaluing real estate.
Property values significantly differ from market values, leading to discrepancies in tax assessments. To reach the $500 million revenue target, city officials may need to establish a new valuation system. Property owners might need regular appraisals, creating demand for appraisal companies. There could also be pressure to undervalue properties to avoid higher tax rates, resulting in clustering of valuations near tax thresholds.
