Judge halts NYC pied-à-terre tax after 17,000 flawed notices

A Staten Island judge temporarily blocked New York City's pied-à-terre tax rollout Monday, halting enforcement of the second-home surcharge after homeowners alleged the city misidentified thousands of primary residences in its 900,000-property tax roll.

"We disagree with today's ruling, but we are confident in both the pied-à-terre surcharge and the City's ability to implement it fairly and effectively," Matt Rauschenbach, deputy press secretary at City Hall, said. The Law Department will appeal the order immediately, he added.

Justice Wayne Ozzi's temporary restraining order bars the city from collecting surcharges from roughly 17,000 property owners who received notices in July and requires the removal of the public tax roll from the Department of Finance website. The tax, signed into law in May by Gov. Kathy Hochul, targets second homes valued at $5 million or more and co-ops and condos worth $1 million or more. About 3,800 of the 17,000 notice recipients had started exemption applications within a week of the mailing, and roughly 2,000 have completed them, according to the mayor's office.

The surcharge was designed to help close the city's budget gap, with a Park Slope homeowner cited in the lawsuit facing a $43,832 annual levy on a $5.48 million property. The next hearing is set for Aug. 31, and the city's appeal could stay the order, allowing implementation to proceed while the case moves forward.

The lawsuit, filed Aug. 7 by three homeowners represented by former Deputy Mayor Randy Mastro, alleges the city "caused mass confusion" by publishing a list of about 900,000 properties — including many primary residences — and sending notices to owners who may not owe the tax. The suit does not challenge the legality of the tax itself but scrutinizes the city's rollout, arguing that requiring wrongly identified homeowners to apply for exemptions improperly shifts the city's responsibility to correctly identify taxable properties.

Many of the homeowners swept up in the rollout own their homes through trusts or limited liability companies — structures that obscure ownership and make it harder for the city to determine whether a property qualifies as a primary residence. Some 28 percent of Manhattan home sales involved a trust in 2024, according to data provider Attom.

A Park Slope resident who received a letter said he and his wife were shocked after owning and living in their home for 42 years. Each spouse transferred 50 percent of the house to a revocable trust last year — a common estate-planning move. "Our records indicate the property above may be subject to the new surcharge," the letter stated, citing a fiscal year 2027 market value of $5,479,000 and a potential surcharge of $43,832.

Michael Cohen, President Trump's former personal attorney, said he received a letter for his condo at Trump Park Avenue on the Upper East Side. The home is owned by a qualified personal residence trust, which has a single beneficiary by definition and should be exempt, he said.

Trust ownership muddies $5M surcharge enforcement

Under the tax rules, a property owned by a trust with a sole beneficiary who occupies it as a primary residence is exempt. But property held in an irrevocable trust with multiple beneficiaries could be subject to the tax even if one beneficiary lives there full time, according to John Pelet, an attorney at Loeb & Loeb. He has advised clients to consider "decanting" — transferring the property to a new trust with the primary resident as sole beneficiary — or leasing the property from the trust at market rates.

The legal challenge creates uncertainty for New York City's fiscal planning and for the luxury real estate market. The tax was projected to raise revenue from owners of high-end second homes, but the rollout's problems have exposed the difficulty of identifying who actually owes. The city's appeal could restore implementation while the case proceeds, but the Aug. 31 hearing will determine whether the temporary block stands.

This article is for informational purposes only and does not constitute investment advice.