Kathy Hochul's pied-a-terre tax spells challenge for co-ops

New York lawmakers approved the state budget containing a new annual levy on pieds-à-terre in New York City’s five boroughs valued at $5 million or more. The tax begins July 1 and is projected to raise about $500 million per year, though some officials expect lower revenue. Real estate leaders criticized the proposal after it was announced with limited details, especially regarding how it applies to co-ops. Under the legislation, the city’s finance department will add the surcharge to the co-op’s overall bill, requiring co-op boards to collect the tax from shareholders using apartments as second homes. If shareholders do not pay, boards may face legal and financial problems, including potential liens on entire buildings, which could reduce co-op participation for second-home buyers.

"Legislators on Wednesday approved the state's budget that includes a new annual levy on pieds-a-terre in the five boroughs worth $5 million or more. The tax will take effect July 1 and has been projected to generate roughly $500 million in revenue each year, though some officials say that number is likely lower."

"Much of the confusion centered on how the tax would apply to co-ops used as second homes. Unlike condo or townhouse owners, co-op owners don't receive individual property tax bills, but rather, the co-op's manager pays a single bill for the entire building. Now that the bill is set to take effect, details of the tax are finally in the public eye, and some real estate players say the specifics are cause for concern, particularly for co-ops."

"Under the legislation, the city's finance department will add the surcharge to the co-op's overall bill, meaning co-op boards will be responsible for collecting the money from shareholders who use their apartments as pieds-a-terre. That process will likely create legal headaches for the board, especially if pied-a-terre owners don't pay up, according to Compass' Jason Haber."

"If the board falls behind on its taxes, the city could place a lien on the entire building. Haber added that the complications could push co-ops to stop allowing shareholders to use or purchase apartments as second homes. Whoever wrote this has never lived in a co-op, Haber said."

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