October 12, 2014
New Pied-à-Terre Tax?
There is talk of a major new tax targeting an important segment of the New York real estate market with the potential for far-reaching implications.
First, the facts: The proposal by the left-leaning Fiscal Policy Institute, would levy an annual tax of 0.5% to 4% of the total property value on non-primary resident co-ops and condos (i.e., pieds-à-terre). As an annual property tax, the cost would far exceed New York transfer taxes.
FPI estimated that there are 1,556 units of this type in New York City, and the organization proposed a graduated tax of between 0.5% and 4%, with the 4% rate starting at $25,000,000 of value.
Since the proposed tax is an increase in property taxes—not transfer taxes—it would create an ongoing stream of income for New York City that FPI estimates at $665 million per year, or a little less than 1% of NYC’s annual budget.
While projecting the likelihood that the tax will become law is difficult, it is getting attention. When asked about the proposal last month, Mayor Bill de Blasio said “We’ll certainly take a look at it. It’s a new proposal, so we’ll assess it, and then once we have a better sense of it, we’ll have more to say.”
There is also precedent in other similar real estate markets. The UK is considering a similar tax, and Hong Kong and Singapore have recently increased taxes on ultra-luxury homes.
Many people have criticized the idea, however, noting that these high taxes (over $1.2 million per year on average for homes over $25 million) could cause ultra-luxury prices to fall, damage the commercial construction market and related jobs, and undermine the city’s reputation as a welcoming place for real estate investment.