It’s New York City real estate’s equivalent of Cher and the cockroach: the pied-a-terre tax on high-dollar, non-primary residences simply cannot be killed. Originally proposed by Sen. Brad Hoylman, a Manhattan Democrat, the luxury tax has been voted down numerous times but now appears to be back on the table, Forbes reports, as the city faces a huge tax revenue shortfall because of the coronavirus pandemic.
The bill’s sponsors are working out an issue related to how co-ops would handle the new surcharge, which is designed primarily as a tax on second (or third or fourth) condominiums owned by wealthy people who rarely use them. The bill’s latest resuscitation is driven by the exodus of New Yorkers fleeing the city for the suburbs, the country and lower-tax states in the face of the pandemic.
According to the proposal, the yearly fee would range from .5% to 4% of the assessed market value above $5 million for one- to three-family non-primary residences, and 10% to 13.5% of the assessed value above $300,000 for condos and co-ops.
Cody Vichinsky of Bespoke Real Estate, a firm that focuses only on properties listed at $10 million and above, does not believe a pied-a-terre tax would provide the revenue boon touted by its proponents. Quite the opposite. “It’s been reported that if the pied-à-terre tax passed the Senate, it would cut properties priced in the $25 million plus range by 46%,” Vichinsky says. “This would act negatively towards everything that the bill is trying to accomplish, or says that it will accomplish. The entire market would suffer as a result, and the real estate investment potential would weaken in New York.”
Warburg Realty broker Gerard Splendore takes a contrary view. "Owners and users of pieds-à-terre are not full-time residents of the city, so they’re not spending money at services and businesses in the city on a regular basis," Splendore says. "This tax helps the city in the owners’ absence, while they are supporting businesses at their 'full-time' residences. The income from the tax would definitely help to bail out the MTA (Metropolitan Transit Authority), which is currently struggling."
It’s also possible that if the law passes, it could spur purchases in advance of the proposed July 1, 2021 effective date, similar to how the mansion tax set off a closing frenzy before going into effect last summer. But skeptics note that this is an apples-and-oranges comparison, since the mansion tax was a one-time levy at time of purchase while the pied-a-terre tax would show up every year on the owner’s property tax bills.
Beyond such disagreements, broker Rachel Lustbader of Warburg Realty believes there’s an elephant in the room: the effect the pandemic is having on potential apartment buyers at all price levels. “People don't want to commit just on the assumption that we'll have a vaccine and life will be back to normal,” Lustbader says. “We don't know how safe the city will be. We (also) don't know if we'll be at a point when the appeal of the city will be available: Broadway, movies, theater, department stores and boutiques. That will still be an unknown."
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