New York’s newly enacted pied-à-terre tax could leave all co-op properties on the hook for huge tax bills if a wealthy second-home owner refuses to pay — raising alarm among real estate agents and co-op lawyers who warn the measure was written without accounting for how co-ops actually work.
“It’s not the shareholder that’s dealing with the consequences, it’s the entire building that’s dealing with the consequences,” Jason Haber, founder of the American Real Estate Association and a Compass broker, told The Post.
Tax led by Gov. Kathy Hochul and it was recommended by Mayor Zohran Mamdani and signed into law as part of the state budget last month.
It is aimed at luxury non-primary residences and is expected to rake in hundreds of millions of dollars a year for wealthy second home owners.
But experts say the additional fee collection machines can create a big headache for cooperative boards, especially in smaller buildings.
Unlike condominiums, co-ops do not have separate tax lots for individual apartments.
Instead, the entire building is considered a single building, with real estate taxes paid by the co-op and passed on to shareholders for monthly maintenance costs.
“Regarding the pied-à-terre tax, the law requires the co-op to pay an additional penalty in the same way that they pay real estate tax, and the co-op must charge the affected shareholder and hope that he will collect it from him,” Rebecca Poole, director of membership and communications at the New York Council of Cooperatives and Condominiums, told Postminiums.
That plan could leave co-op boards temporarily putting up large sums of money while trying to recoup fines from absentee owners.
“It is possible that co-ops can withdraw money while waiting for the shareholder who will be charged an additional fee to return that money,” said Poole.
The problem is especially acute in small buildings, where one large apartment can result in a significant tax.
“For example, if you have a five-unit co-op and the pied-à-terre tax applies to the largest unit – which may be composed of several combined units – the other four shareholders can be forced to come up with a large amount of money that they should not pay, an additional penalty, while trying to collect funds from the foreign owner,” said the city owner.
Haber warned that enforcement could cause even bigger problems because co-ops don’t have individual tax parcels.
“You can’t file a tax credit on each unit in the cooperative because there is no tax on that unit,” Haber said.
“Instead, what are you doing?
That means a dispute involving one shareholder could affect everyone who lives in the building, according to Haber.
“If someone is trying to sell their house and the buyer gets financing, that buyer may not be able to get financing because of the tax,” he said.
“It creates a cloud in the building.”
Haber argued that lawmakers failed to fully consider the unique structure of co-op ownership when drafting the law.
“There is only one tax for the whole property, so how do you calculate the tax for each shareholder? This is the problem,” he said.
Poole said many boards are still trying to determine whether the tax will apply to their properties and which shareholders may be affected.
“The two problems that we may see happening are the lack of clarity among co-ops in general whether this will work or not, because in the newspapers it was estimated at $5 million and the market value does not exactly match that,” he said.
He added that the boards should start preparing now.
“The first step we encourage is for co-op and condo boards to look and see if this will work for any of their apartments and start preparing,” said Poole.
Some boards are already discussing whether to limit future pied-à-terre ownership altogether to avoid potential liability, according to Haber.
“The whole building is affected if one shareholder does not pay taxes,” he said.
The Post sought comment from Mamdani and New York Gov. Kathy Hochul.
