NYC Property Tax System Undervalues Co-ops and Condos, Experts Say New System Needed for High-End Second Homes

New York’s proposed “pied-à-terre” tax on second homes worth more than $5 million is likely to spark costly legal battles over how to value the city’s most expensive real estate, according to appraisers and attorneys.

The tax, announced last week by New York Gov. Kathy Hochul and New York City Mayor Zohran Mamdani, would impose an annual surtax on non-primary residential real estate valued above the $5 million threshold. Officials say the levy is expected to raise about $500 million annually to help address the city’s $5.4 billion budget deficit.

However, experts warn that New York’s antiquated property tax system dramatically undervalues co-ops and condos because their assessed value is tied to comparable rental properties rather than market value. This discrepancy means the city will need to develop a new valuation method for high-end second, third, or fourth homes to implement the tax effectively.

Robert Pollack, senior partner at the law firm Marcus & Pollack and an expert on New York real estate taxes, stated that assessed values under the current system are “absurdly low” and “not representative of market values.” This fundamental flaw in the assessment process is expected to be a central point of contention in any legal challenges to the tax.

Real estate appraisers and attorneys interviewed by multiple outlets said the tax sets the stage for a significant legal fight over valuation methodologies in one of the world’s most expensive real estate markets. They emphasized that without a reliable and legally defensible system for determining market value, the tax could face prolonged litigation.

As of the announcement, officials had not released specific details about the tax rate, implementation timeline, or exact valuation procedures that would be used to determine which properties fall under the new surtax.