New York’s new tax on high-value second homes was designed to raise revenue. But changes to the tax code can also affect how people buy and sell real estate.
“There’s always a risk of avoidance,” he explains Jake Krimmelchief economist Realtor.com®. “Tax bases are notoriously mobile—especially across municipal boundaries—and this is doubly true for wealthier individuals.”
With the first surcharge invoices expected to be mailed in the coming days, Realtor.com analyzed nearly 1 million property and apartment listings across the country. additional city taxidentifying 24,218 potentially exposed homes that met the appropriate assessment thresholds.
Of these, 2,536 (10.5%) sat just 5% above the minimum assessment required for taxation, while 560 (2.3%) fell within 5% either side of the higher tax rate threshold.
Which side of this divide a home falls on can result in big financial stakes for owners, and agents say buyers are already aware.
“The biggest change since July is that buying a second home in New York has become a more calculated decision,” he said. Donald Brennan, Real estate broker with Engel & Völkers.
It’s easy to see why.
In at least one building, two apartments with a government-designated market value of just $6,009 could face a $37,813 difference in annual surcharges because they fall on opposite sides of the tax rate threshold — assuming neither qualifies for the exemption.
The tax base may not be as large as it seems
New York has long attracted affluent buyers looking for a second home for work, leisure or the opportunity to spend part of the year in the city.
“I might be biased, but it’s a fantastic place to live, especially if you can afford it,” Krimmel says.
His warning reads: if you can afford it. With an estimated 52% of New York City renters facing excess housing costs, wealthy second homeowners present a tempting target for the mayor. Zohran Mamdani‘s rich agenda.
But the new tax will add significant costs even to those who can afford more than one home.
The surcharge for condos and co-ops starts at 4% of their Department of Finance market value at $1 million. One- and three-family homes face an initial rate of 0.8% starting at $5 million.
Townhomes are valued using comparable sales, but condos and co-ops are valued based on potential rental income, so their tax limits not directly comparable. Annual surcharges start at around $40,000 at both entry points.
Brooklyn has 560 of the 713 Class 1 properties, just above the minimum threshold, and Manhattan has 1,700 of the 1,823 condo and co-op units in the equivalent position.
But local brokers note that many of these properties may never face a surcharge.
“In Brooklyn, I think it creates a little bit of a different conversation because a lot of our luxury buyers are buying homes that they actually intend to live in,” he says. Jessica Petersa Brooklyn-based brokerage with Douglas Elliman.
Thousands of owners have already secured exemptions from the new tax. Of the approximately 17,000 notices sent to owners, nearly 11,000 exemption applications have been submitted and more than 8,800 have been approved as of October 29. The Gothamist reports.
This creates great uncertainty about how much revenue the city can actually generate.
Although the city will receive $500 million in annual revenue from the new tax, the moment City Comptroller’s April report Mark Levine warned that exemptions and other behavioral changes could reduce collections by $340 million to $380 million.
But exemptions aren’t the only factor that affects whether owners can owe. There is also the issue of threshold values.
Condo and co-op rates increase to 5.25% over $3 million and 6.5% over $5 million. For one- to three-family homes, prices increase to 1.05% over $15 million and up to 1.3% over $25 million.
And since the higher rate applies to the entire value of the property, even a small difference in assessment can lead to a monumental increase. For example, the owner of a $3 million condo or co-op subject to a rate of 5.25% would owe just over $157,000.
These high-level thresholds also have a much narrower geographic footprint. Of the 270 records above the higher 5% threshold, 264 are located in Manhattan, including 33 in the 10022 zip code and 29 in 10021.
Krimmel says owners can respond by rethinking where they buy or how they use their property.
“The question is whether there are other places that act as close substitutes for the new taxable properties,” he says.
Brennan sees the calculation emerging among buyers who may spend a few months a year in New York.
“When you’re looking at a multi-million dollar apartment that you can only use a few months of the year, that additional tax becomes part of the conversation very quickly,” he says.
He adds that some may decide to rent rather than buy.
As Krimmel points out, these decisions can ultimately help free up housing for other buyers or tenants. At the same time, these sales can also reduce the number of properties that generate additional fee income.
How can a few thousand dollars change the calculation
Entrepreneurs also challenge the tax in court. Three lawsuits have been filed, two of which are still pending.
An appeals court ruling on Nov. 4 dismissed a lawsuit challenging the city’s permanent removal, while the remaining cases challenged its constitutionality.
But homeowners don’t need to repeal the law to challenge what they might owe. They can also dispute the city’s assessment of their property — and for those sitting above the tax threshold, even a small adjustment can eliminate the surcharge altogether.
Narrowing down the analysis to properties within just 1% of the tax threshold, there are 602 entries, including 496 just above the minimum assessment required for taxation.
An additional 106 entries fell within 1% of the higher grade cutoff, including 61 slightly below and 45 above. All were in Manhattan, and 66 of them were condos or co-ops near the $3 million threshold, where the annual surcharge rose from 4% to 5.25%.
From a bird’s eye view of the city, these differences may seem insignificant. But they become more dramatic when looking at a specific building.
At 111 West 57th St., a luxury condominium tower near Central Park, Unit 57 has a DOF market value of $2,999,794 — just $206 below the higher limit. Section 38 is valued at $3,005,803.
That $6,009 difference in assessment translates into a $37,813 difference in potential annual surcharges, with the higher-priced apartment facing a charge of about $157,805.
A similar disparity is seen at 768 Fifth Ave., where DOF faces a $38,317 difference in potential annual payments for two units separated by a market value of $19,337.
This is not a small amount, even for a wealthy homeowner.
“If they’re already paying huge shipping costs, they’ll look for ways to offset those costs, either through the purchase price or other incentives,” he says. Ben Jacobsa Douglas Elliman Broker specializing in Manhattan and Brooklyn.
A lower asking price won’t automatically reduce the government’s assessment or tax liability, but it can help buyers offset the cost of moving the property.
Krimmel sees another potential outcome: The surcharge could change what economists call property option value— the value of being able to use it differently in the future. For example, condominiums typically offer more flexibility to rent than co-ops, making the potential rental income part of the buyer’s purchase price.
The same principle can be applied to homes that buyers may want to use as a second residence.
Even if the property is vacant today, the possibility of a future surcharge may be another issue in negotiations. Jacobs adds that uncertainty can have its own consequences.
“Buyers want to know exactly what they will be exposed to before they commit,” he says. “When those answers aren’t immediately clear, it can delay the operation.”
Does the tax already change the market?
There are early signs of a sharper slowdown in New York City’s luxury condo and co-op market since the city began notifying potentially affected property owners in July, he said.
New condo and co-op listings for $1 million to $3 million initially fell 11% year-over-year from July to Nov. 7, compared with a 1% increase between April and June, according to an analysis of Realtor.com listing data.
The decline was even sharper among properties priced between $3 million and $5 million, where new listings fell 16% year-over-year since July after falling 5% in the previous three months.
By comparison, new listings under $1 million fell just 1% year-over-year from July after rising 7% between April and June.
Of course, the pied-a-terre tax cannot take all the blame for the slowdown. The luxury market was already showing signs of weakness before the city started sending out tax notices, and rising mortgage rates added another headwind.
Meanwhile, brokers say some second-home buyers are taking a more cautious approach to buying.
“I don’t think this means that wealthy buyers are suddenly leaving New York. They still want to be here,” Brennan says. “But they’re looking more closely at the numbers.”
Peters is asking some potential second home buyers to delay their decision or rent until they better understand their potential tax liability.
“What I’m more interested in is how the extra costs can affect the decisions of buyers before they even start looking.”
The first additional payments are due on January 1, 2027, and the larger market reaction (if any) will take longer to overcome the myriad other factors affecting buyer and seller behavior.
But for now, two things are clear: thousands of potentially affected properties are close to tax thresholds with huge financial implications, and new luxury condo and co-op listings have slowed considerably since the city began notifying owners.
It remains to be seen whether these developments are related and whether the tax will ultimately change the number of second homes in New York.
