New York’s City’s Pied-à-Terre Tax: Ownership Structure Now Matters

The Issue

New York City has a new tax aimed squarely at high-value second homes. New York’s new Pied-à-Terre Tax (“PAT Tax”) is imposed on residential real property owners in New York City who use such property as a secondary residence or an investment.[1]  It reaches one-to-three-family homes, residential condominium units, and cooperative apartments above statutory value thresholds. The surcharge is scheduled to remain in effect through June 30, 2031.

What could it mean for individuals, fiduciaries, families, and business owners?

The surcharge is not simply another line on a property tax bill. Because the exemption turns on primary-residence use, and because the statute identifies the “covered owner” through narrow look-through rules, the form in which a residence is held can determine whether the exemption is available at all.

Fiduciaries administering trusts that hold New York City real property may find that provisions drafted years ago for estate tax, creditor-protection, or family-governance reasons now affect an unrelated City property tax exemption. Families holding a residence through an LLC or other entity may discover that the ownership split among siblings or partners changes the answer. Co-op boards become unwilling participants, because the surcharge is billed at the building level and collected from affected shareholders. And owners who already pay New York City resident income tax may still face exposure.

Key Takeaway

Exposure under this tax depends on three things working together: whether the property is within a covered category, how the City values it, and who the statute treats as the owner. Existing structures that were entirely appropriate when created may produce unintended results under a regime that did not exist at the time. At the same time, restructuring should never be undertaken to address the surcharge alone, without weighing the estate, gift, income tax, fiduciary, and asset-protection consequences.

If you would like to read much more on the Pied-a-Terre Tax, please click here for the full article.

[1] See N.Y. Tax Law § 1350.