Did You Receive Your Pied-à-Terre Tax Notice?

If you own residential property in New York City, you may have received a notice from the New York City Department of Finance (“DOF”) about a new annual charge on certain residential properties not used as the owner’s primary residence — commonly called the “pied-à-terre tax.”

A state court judge temporarily paused enforcement of the surcharge on August 10, 2026. The City appealed, and on August 13, 2026, a New York appellate court temporarily stayed the order, allowing the City to resume enforcement. Both sides are due back in court on August 31, 2026. The DOF has since further extended the exemption filing deadline to October 6, 2026, following continued pushback over the surcharge’s rollout. While it is not clear whether the surcharge will ultimately be enforced, we suggest that our clients continue to treat October 6, 2026, as the deadline.

Through the use of a case study, this advisory explains how the surcharge works, who qualifies for an exemption, and the next steps. It closes with a step-by-step action list.

Receiving a notice does not mean you owe this tax, but it does require you to take action. The surcharge only applies above certain dollar-value thresholds, and it does not apply to primary residences — so many recipients will qualify for an exemption and owe nothing.

If you received a notice, it means the DOF has made a preliminary, not final, finding that your property may be subject to the surcharge. You must submit an exemption application to the DOF by October 6, 2026. If you miss the deadline, you may owe the surcharge even if you would otherwise have qualified for an exemption.

CASE STUDY: Morgan and Devin are a married couple. Their New York City condominium at 100 Central Perk North, Unit 5A (the “Condo”) is held by the Whitfield Irrevocable Trust. Tracey is the sole trustee. The trust was established for the current benefit of Morgan (parent, age 52), Avery (adult child, age 26), and Charlie (minor child, age 13). Devin (parent, age 54) is not a trust beneficiary. The Condo has a DOF market value in 2026 of $3,500,000. In an alternative scenario, the Condo is owned by the Morgan Revocable Trust, which is for the sole current benefit of Morgan during her lifetime.

Which Properties Are Subject to the Surcharge?

Whether the surcharge applies to your property, and how much you might owe, depends on your property type, its value, and the current phase of the law:

1. Phase 1 (July 1, 2026 to June 30, 2028): covers one-to-three family homes valued at $5 million or more, and condominiums or cooperative apartments valued at $1 million or more per unit. See the table below.

2. Phase 2 (July 1, 2028 onward): the threshold rises to $5 million for condominiums and cooperatives, using a comparable-sales valuation method.

The Phase 1 threshold for co-ops and condos is only $1 million, low enough to capture many New York City apartments that owners would not typically consider “luxury” properties.

Application: The Condo’s Phase 1 DOF market value of $3,500,000 exceeds the $1,000,000 Phase 1 threshold for Class 2 condominium units, so the Condo is subject to the surcharge during Phase 1 unless an exemption applies. In Phase 2 (beginning July 1, 2028), the threshold rises to $5,000,000; if the Condo’s Phase 2 market value stays below that amount, it will no longer be subject to the surcharge.

How is Market Value Determined?

The DOF’s valuation method depends on property type and phase. In both Phase 1 and Phase 2, the DOF uses comparable sales for 1-3 family houses. For condos and co-ops during Phase 1, the DOF estimates market rental income and converts it to a value using “income capitalization,” producing an imputed per-unit value for co-ops based on the unit’s share of the building’s overall assessed value. In Phase 2 (beginning July 1, 2028), condos and co-ops will shift to the same comparable-sales approach used for houses.

The DOF published an addendum to the assessment roll on July 24, 2026, listing each property that may be subject to the surcharge along with its Phase 1 market value. The addendum is separate from the individualized mailed notices and is posted publicly on the DOF’s website rather than mailed to owners directly. Co-op units may be listed by street address and unit number. A final version will be published on December 31, 2026. Review it to confirm whether your property appears and to challenge any incorrect market value (a valuation challenge has its own deadline and process, discussed later). The addendum does not reflect any exemption you may have claimed; that happens only through the individualized notice and appeal process described later in this advisory.

How Much is the Surcharge?

An important note on the rate difference: in Phase 1, the city uses a lower property value (due to the rental-income method) and a higher rate; in Phase 2, it uses a higher, more realistic value and a lower rate. These changes are designed to offset each other, so your tax bill does not balloon when the valuation method changes.

Once a property meets the threshold, the surcharge applies to its entire market value, not just the amount above the threshold: a condominium valued at $1.1 million would be taxed on the full $1.1 million, not just the $100,000 above the $1 million threshold.

Application: At the Phase 1 rate of 5.25%, the annual surcharge for the Condo would be $183,750, in addition to regular New York City real property taxes. In Phase 2, the Condo would owe no surcharge if its comparable-sales value stays below $5,000,000, or a reduced 0.8% rate if it exceeds that amount.

Who Qualifies for the Primary Residence Exemption?

The most important exemption is the primary residence exemption; if it applies, you owe nothing. You must show that, on January 5, 2026 (the key date for the fiscal year running July 1, 2026 through June 30, 2027), the property was actually used as a primary residence by any one of the following individuals (meeting just one category is enough):

• The owner (referred to in the rules as the “covered owner”), including an owner that is a trust or entity, subject to special rules explained later in this advisory;
• An immediate family member of the owner (a spouse, child, sibling, parent, grandparent, or grandchild);
• A qualifying tenant or subtenant under a genuine, arm’s-length lease of at least one year (or, for month-to-month arrangements, through a specific affidavit process set out in the rules); or
• The sole beneficiary (or beneficiaries) of a trust holding the property, or the majority interest holder(s) of an entity (such as an LLC) owning the property.
• Past or future use is not enough; the property must have been used as a primary residence specifically on January 5.

This exemption is not automatic; the DOF makes a fresh determination every year. Sometimes the DOF will find on its own, from its existing records, that a property qualifies—for example, if an individual owner, or spouses who jointly own a home, lists the property as their home address on their most recently filed tax return. Otherwise, the DOF will send a notice, and the owner must demonstrate primary residency by submitting an exemption application with supporting documentation.

How Does Trust Ownership Affect the Exemption?

For property held in a trust, multiple individuals may together count as the trust’s “sole beneficiaries.” A group of current beneficiaries — those eligible to receive income or principal now, such as a parent and children — can qualify together, but only if all current beneficiaries use the property as a primary residence. A remainder beneficiary (someone who becomes a beneficiary only after another beneficiary’s death or other triggering event) does not count until they become a current beneficiary.

To establish eligibility as a trust, the exemption application must include:

• A copy of the trust agreement showing the individual or individuals are the sole beneficiary or beneficiaries; and
• An affidavit from a trustee of the trust confirming the same.

Application A: Morgan, Avery, and Charlie (all current beneficiaries) and Devin use the Condo as a primary residence as of January 5, 2026.

The exemption is likely available because all three current beneficiaries satisfy the primary residence requirement. Devin’s presence as a non-beneficiary does not defeat it, since the rule requires only that all current beneficiaries use the property as a primary residence, not that all residents be beneficiaries. Tracey should submit the trust agreement, a trustee affidavit, and Morgan’s income tax return listing the Condo as her primary address.

Application B: Morgan uses the Condo as a primary residence. Devin, Avery, and Charlie live at a separate residence.

The exemption fails through the trust beneficiary track because Avery and Charlie do not use the Condo as a primary residence even though Morgan does. An open question is whether Morgan alone would qualify as a primary beneficiary.

Application C: The Morgan Revocable Trust is the sole owner of the Condo. Morgan, Avery, Charlie, and Devin use the Condo as a primary residence as of January 5, 2026.

The exemption is available through the trust beneficiary track because Morgan, the only current beneficiary, uses the Condo as her primary residence. Devin, Avery, and Charlie’s use does not affect this result.

Application D: The Morgan Revocable Trust is the sole owner of the Condo.Devin uses the Condo as a primary residence. Morgan, Avery, and Charlie live at a separate residence.

The exemption is likely available through the immediate family member track: Morgan, as the sole current beneficiary, is a “covered owner.” Devin, as Morgan’s spouse, is an immediate family member of a covered owner. Because Devin uses the Condo as a primary residence, the exemption applies even though Morgan does not live there. This track is independent of the trust beneficiary track, which is unavailable here.

How Does Entity Ownership Affect the Exemption?

The “primary residence by owner exemption” for entity-owned properties is limited to qualifying natural persons. If you own your property through a partnership, corporation, LLC, or trust (where the occupant must generally be the sole beneficiary), there may only be one entity in between the natural person and the property (or, for co-ops, all of the shares for the unit.) If LLC A owns LLC B, and LLC B owns the apartment, the exemption may not be claimed. Multiple individuals who jointly hold a majority interest in the entity (such as spouses) may add their interests together to meet that requirement, but entities may not add their interests together.

Application E: Whitfield Irrevocable Trust and Morgan Revocable Trust own the Condo 50/50. Morgan, Avery, and Charlie use it as a primary residence. The rule against adding together fractional interests applies only to property held by a partnership, corporation, or LLC, not to trusts. So two trusts holding the Condo for the same sole beneficiary should qualify under the text of the law, though this is not expressly confirmed by the DOF.

Application F: Whitfield Irrevocable Trust and Morgan Revocable Trust own the Condo 50/50 via an LLC.This structure likely does not qualify.

What Happens Following Death or Hospitalization?

If a person using a covered property as a primary residence passes away, is hospitalized, or is temporarily placed in a nursing home or rehabilitation facility, the property may still qualify for the primary residence exemption for a limited period, provided (1) the person was using the property as a primary residence immediately prior to the event and (2) the proper documentation is provided.

The person is treated as continuing to use the property as a primary residence for (1) one year after death, or (2) as long as the hospitalization or nursing home or rehabilitation stay continues). To claim this relief, the owner or estate must submit to the DOF proof of (1) the death, hospitalization, or facility stay and (2) the person using the property as a primary residence immediately beforehand (such as a recent tax return). There is no comparable grace period for other types of absence (including extended travel, employment in another city, school, or military service); the property must qualify as a primary residence as of January 5 regardless of the reason for any absence. The DOF may audit submissions for six years, so all documentation must be accurate.

Application: Morgan used the Condo as a primary residence immediately before January 5, 2026. She passed away before the fiscal year; Tracey submitted Morgan’s tax return showing the Condo as Morgan’s primary address. If the Morgan Revocable Trust owns the Condo, the DOF will likely grant the exemption for Morgan’s share.

If the Whitfield Irrevocable Trust owns the Condo, and Avery and Charlie were not using the Condo as a primary residence, the trust beneficiary exemption remains unavailable for their interests regardless of Morgan’s death. The continuation applies person-by-person; it does not cure the other beneficiaries’ failure to meet the residency requirement.

What Should I Do If I Receive a Notice?

Receipt of a notice reflects only the DOF’s preliminary determination; it is not a bill. Here is what to do, step by step, if you receive one:

1. Review it carefully, including the stated market value and projected surcharge amount.[1]
2. Determine whether an exemption applies based on your ownership structure and residency facts as of January 5, 2026.
3. Gather evidence of actual use as of January 5, 2026. Helpful documentation may include your most recently filed state or federal income tax return, driver’s license, voter registration records, utility bills, leases, rent payment records, trust agreements, and organizational documents.
4. Submit your exemption application and all supporting documentation to the DOF through its online portal at www.nyc.gov/npsurcharge, no later than October 6, 2026. This deadline is firm despite the pending court order; submit well before it in case of technical issues.
5. If your initial application is denied, you may submit one additional application with more supporting information before the deadline. File early: if you wait until the last day and are denied, you will have no opportunity to resubmit.
6. Retain copies of all materials submitted for your records.
7. The appeal window is 30 days from the date the DOF transmits the notice, not the date you receive it. If no notice is transmitted, the appeal period runs from 30 days after the surcharge appears on the assessment roll.

If you own a co-op, the surcharge is billed to your building’s cooperative corporation, which then collects it from the shareholder whose unit triggered the charge. Contact your building’s managing agent or board to confirm any DOF notices have been forwarded to you and to coordinate your exemption filing. Any unpaid surcharge, together with applicable penalties and interest, constitutes a lien on the property itself. This means that buyers and sellers of covered properties should ensure their transaction documents specifically address the allocation of risk for any retroactive surcharge determination, which the DOF may make up to six years after a submission is filed.

How Do I Challenge the Valuation or DOF’s Primary Residence Determination?

There are two separate paths for challenging the DOF’s determinations, and the choice between them matters.

Primary Residence Challenge (filed with DOF): If you receive a notice and believe you qualify for the primary residence exemption, submit an exemption application to the DOF within 30 days of the date the notice is transmitted (one additional application is allowed if the first is denied, before the deadline). You cannot pursue a simultaneous challenge with both the DOF and the New York City Tax Commission. If you file with the Tax Commission, the DOF will not consider any application filed through its own process, and any DOF determination already issued will have no effect.

Application: Tracey believes the addendum overstates the Condo’s value at $4,500,000 and also believes the Condo qualifies for the primary residence exemption. Tracey will file a challenge with the DOF. Both challenges must be brought together in a single filing with the Tax Commission.

What Are the Penalties for False Submissions?

The DOF may impose penalties if it finds that submitted documentation contains inaccurate or misleading information material to the surcharge determination, and submitted negligently or in bad faith. Even careless mistakes can trigger a penalty and the penalties are significant:

• If the inaccurate submission would have resulted in no surcharge being imposed: a penalty of 50% of the applicable surcharge, plus the surcharge itself will be reinstated.
• If the inaccurate submission would have resulted in a lower property valuation: a penalty of 300% of the difference in surcharge attributable to that lower valuation (capped at 50% of the applicable surcharge).

The DOF can audit any submission for six years, so make sure everything you submit accurately reflects the facts.

Although the surcharge’s rollout has encountered legal challenges, enforcement is currently proceeding following the August 13 stay of the original blocking order. Therefore, we recommend continuing to treat October 6, 2026, as the operative deadline. Please contact your Goulston & Storrs attorney or a member of our Private Client & Trust Group if you have questions about this new surcharge tax.

^{1 Valuation Challenge (filed with the Tax Commission): If you believe the DOF has incorrectly valued your property, you may file a challenge with the New York City Tax Commission. In certain circumstances, you may bring both a valuation challenge and a primary residence challenge before the Tax Commission — but you must file both together. Filing in the wrong forum, or failing to include both challenges in the same filing, may limit your available remedies. The choice of forum is strategic and should be made carefully, particularly where both residency and valuation are in dispute.}