State lawmakers in New York have passed a tax on nonprimary residences in the city, aimed at helping close the budget gap. The so-called pied-a-terre tax will be imposed on second homes valued at $1 million or more and will take effect in two different phases.

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The tax is expected to raise $500 million in revenue and will affect many wealthy luxury apartment owners. According to tax experts, the property tax will more than double for many of these owners, with some facing a tripling of their property tax bills.

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Details of the Tax

Details of the tax obtained by CNBC show that the property tax would take effect in two different phases. In the first two years – the tax years 2026-2027 and 2027-2028 – condos and co-ops valued at more than $1 million by the city’s Department of Finance will be subject to the tax. Properties worth between $1 million and $3 million will face a 4% annual tax; properties valued at $3 million to $5 million will face a 5.25% tax; and those above $5 million will face a 6.5% tax.

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However, experts say that the city’s antiquated assessment and valuation system dramatically undervalues properties, reducing the burden of the tax. City valuations can often be 10% or less of the true market value, they said.

Phased Implementation

Rather than overhaul the system immediately, the city will gradually update valuations – and the tax – according to the budget documents. Starting in the 2028-2029 tax year, the property values will be based on comparable sales. Since valuations will skyrocket, the tax rates will fall to compensate.

After the valuation adjustments, properties worth between $5 million and $15 million will be subject to a tax rate of 0.8%; properties between $15 million and $25 million will be taxed at 1.05%; and properties over $25 million will be taxed at 1.3%, according to the budget plan.