As part of New York State’s Fiscal Year 2026–2027 Budget, lawmakers enacted legislation imposing a new annual surcharge on certain high-value New York City residential properties that are not used as a primary residence. The surcharge, which is in addition to existing real property taxes, takes effect on July 1, 2026 and is currently scheduled to remain in effect through June 30, 2031, unless extended.
Which Properties Are Covered?
The surcharge generally applies to one, two and three family homes, as well as residential condominium units and residential cooperative apartments, that (i) are not used as a primary residence and (ii) meet specified value thresholds.
The statute provides that a property may qualify as a primary residence based on occupancy by the owner, certain qualifying tenants, or, in the case of an individually owned property, certain family members. The Department of Finance (“Department”) is directed to determine primary residence status on an annual basis, based on factors to be established by regulation, including whether the property was occupied for a majority of the year by a covered owner. For the upcoming tax year, the Department must notify owners whether they are subject to the surcharge no later than August 30, 2026.
If the Department determines that a property is not a primary residence, owners may be required to submit a certification supported by specified supporting documentation. The Department is also authorized to establish procedures to audit any such certifications or supporting documentation for a six-year period.
Ownership Through Trusts and Entities.
The statute contains anti-avoidance provisions that specifically look through common ownership structures. If a one, two or three family home, condominium unit or cooperative apartment is owned by a trust, the statute generally treats the trust’s beneficial owner or owners as the relevant owners, provided those beneficiaries are the sole beneficiaries of the trust. As a result, transferring a second home to a revocable trust or other commonly used estate-planning trusts generally will not avoid application of the surcharge. Similarly, where a covered property is owned through a partnership, corporation, or limited liability company, the statute generally attributes ownership to the entity’s majority partners, shareholders, or members.
Valuation Thresholds and Surcharge Rates.
The surcharge will be implemented in two phases. During the initial phase, which runs from July 1, 2026 through June 30, 2028, one, two and three family homes will be subject to the surcharge only if the property’s market value is at least $5 million. These properties will be subject to an annual surcharge of 0.8% if valued between $5 million and $15 million, 1.05% if valued between $15 million and $25 million, and 1.30% if valued above $25 million.
Condominium and cooperative units are subject to lower valuation thresholds during the initial phase. The surcharge applies to units with a market value of at least $1 million and is imposed at rates of 4.00% for units valued between $1 million and $3 million, 5.25% for units valued between $3 million and $5 million, and 6.50% for units valued above $5 million. These lower thresholds reflect the fact that condominium and cooperative units are currently valued under a methodology that often produces values below actual market value.
Beginning July 1, 2028, the statute adopts a new valuation methodology intended to more closely reflect the actual market value of condominium and cooperative units by looking to comparable sales. Once that methodology takes effect, all covered property types will be subject to a uniform $5 million threshold. At that point, the annual surcharge for all covered properties will be 0.80% for properties valued between $5 million and $15 million, 1.05% for properties valued between $15 million and $25 million, and 1.30% for properties valued above $25 million.
In each case, the surcharge is imposed on the property’s full value rather than only the portion of value exceeding the applicable threshold.
Consideration for Cooperative Boards.
In the case of cooperative apartments, the surcharge will be assessed at the building level and collected by the cooperative corporation from tenant-shareholders, with the co-op responsible for allocating and enforcing payment obligations within the building. This structure creates administrative burdens for boards, particularly where individual shareholders fail to pay amounts attributable to the surcharge, effectively shifting collection risk to the cooperative in the same manner as other building-level tax or charge delinquencies. In light of this framework, cooperative boards may face increased pressure to incorporate the surcharge into approval standards for prospective purchasers, including more detailed residency and use disclosures and, in some cases, more restrictive policies regarding secondary residence ownership where permitted under governing documents.
Implementation Issues.
Although the legislation has been enacted, several key aspects of implementation remain subject to forthcoming guidance from the Department. The statute does not fully set forth the factors that will be considered in determining primary residence status, or how the primary residence test will apply in more complex factual scenarios. It leaves open how the ownership attribution rules will apply in practice, including in the context of discretionary trusts, trusts with multiple or contingent beneficiaries, tiered entity structures, and entities without a clearly identifiable majority owner.
In addition, it is unclear how disputes between taxpayers and the Department will be resolved in practice, including the timing of determinations, the frequency of reassessments or challenges, and the procedural mechanics once the surcharge is imposed. Until detailed regulations and administrative practices are established, the ultimate scope and application of the surcharge will remain uncertain.
Our firm will continue to monitor regulatory and administrative developments and provide updates as additional guidance is issued by the Department.
Our Real Estate Practice Group is experienced in the entire range of commercial and residential real estate transactions, cooperative and condominium governance and related matters, and offers a sophisticated and cost-effective alternative to BigLaw rates without compromising quality. Please feel free to contact Darren Berger, dberger@kanekessler.com at 212 519-5196, Ari Gamss, agamss@kanekessler.com at 212 519-5135 or Seamus McDonough smcdonough@kanekessler.com at 212 519-5183 with any questions regarding this Article or any other matter you may want to discuss.
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