A new pied-à-terre tax in New York State is raising concerns, particularly among real estate professionals and co-op advocates. They argue the legislation, initiated by Governor Kathy Hochul and supported by Mayor Zoran Mamdani, seems to overlook the intricacies of how co-op buildings function.
“It’s the building as a whole that suffers, not just the individual shareholders,” stated Jason Haber, a broker with Compass and a co-founder of the National Association of Realtors.
This tax, part of last month’s state budget, is aimed at wealthy owners of luxury second homes. It’s projected to generate significant revenue annually.
However, experts warn that the execution of this tax could present logistical challenges for co-op boards, especially in smaller buildings.
Co-ops differ from condominiums in that they don’t have distinct tax parcels for each unit. Instead, the entire property is appraised collectively, and the taxes are paid through monthly maintenance fees.
“Under the new law, co-ops will have to cover the pied-à-terre tax in the same way they handle regular property taxes, meaning they must also collect those costs from owners affected by the surcharge,” remarked Rebecca Poole, director of membership and communications for the New York Cooperative and Condominium Council.
This arrangement might strain co-op boards financially as they seek to recover additional charges from owners who might not be present.
“There’s a risk that the co-op could face cash flow issues while waiting for reimbursement from shareholders liable for the surcharge,” Poole noted.
This challenge could be particularly pronounced for smaller co-op buildings, where a single sizable unit might create a substantial tax bill.
For instance, if a five-unit co-op finds that the largest unit is subject to this tax, the remaining shareholders might struggle to come up with the necessary funds to cover this cost, all while attempting to collect from out-of-town owners.
Haber emphasized that the potential for disputes could extend beyond the financial implications, particularly since co-ops lack separate tax lots.
“You can’t put a tax lien on an individual unit because it’s not categorized that way,” he explained.
So what’s the alternative? A lien on the entire building, which means a problem with one owner could impact all residents.
“If a unit owner is selling and their buyer has a loan, that buyer might find it difficult to secure financing due to a tax lien,” he added. “It could really complicate things.”
Haber criticized the law for not properly accounting for how co-op ownership works.
“How is it possible to levy taxes on individual owners when there’s only one tax block for the entire building?” he asked.
Poole mentioned that many co-op boards are still trying to ascertain whether this tax applies to them, given the confusion around the reported $5 million threshold and the property values involved.
“There’s a real need for clarity on whether this will impact them,” she said.
She added that boards should start planning now.
“The first thing we encourage is for boards to determine if this applies to their buildings and to begin preparations,” Poole advised.
Haber pointed out that some boards are considering restricting future pied-à-terre ownership altogether to mitigate potential issues.
“One owner’s failure to pay could have repercussions for the entire co-op,” he added.
Attempts have been made to reach both Mayor Mamdani and Governor Hochul for further insight.
