Effective July 1, 2026, owners of “pied-à-terre”  co-op or condo units and/or one- to three-family houses located in New York City (referred to here as a “covered property”) are subject to an add-on property tax surcharge (aka the PAT tax) if (a) the covered property is not the owner’s primary residence, and (b) the property’s market value as set forth on the property tax records exceeds a set dollar threshold (Phase 1 or Phase 2).

When fully implemented, the PAT tax is intended to apply to non-exempt covered properties with a market value of $5 million or more. However, because current property tax records pre-date the PAT tax, those records are supposed to be updated under an as-yet-to-be-determined methodology, so that in Phase 2, the PAT tax applies to a covered property (regardless of type) starting at a market value of $5 million.

Room for Confusion

Despite its central importance, what qualifies a property as a “primary residence” is not defined under the enabling legislation or current set of proposed rules—even though in the context of income tax, questions of residence and domicile are notoriously dependent on “facts and circumstances.”  

Definitional issues aside however, a covered property qualifies if it is used as a primary residence by an owner of the property, a member of an immediate family (spouse, child, sibling, parent, grandparent or grandchild), or a lessee under a one-year or more lease. Look-through rules apply to a covered property owned through a trust or business entity.

On an annual basis, the New York City Department of Finance (DOF) will mail an "initial determination" to an owner stating that the covered property is subject to the PAT tax for the upcoming fiscal year (July 1), if DOF initially determines that the property has a market value in excess of the applicable dollar threshold and does not qualify as a primary residence. The DOF is authorized to base this initial determination on “information available,” most likely derived from the absence or presence of a New York resident income tax return associated with the covered property's address. If an owner fails to contest the DOF’s initial determination within the 30 days, the owner loses the right to contest the initial determination for that fiscal year. 

Given the PAT tax’s rapid roll-out and the strict time limit on appeals, even if a covered property is used as a primary residence, every owner should be on the lookout for an initial determination (due out by August 30, 2026, for the 2026/2027 fiscal year) from the DOF, and be ready to contest any error.

What About Co-ops?

For cooperative housing corporations, the PAT tax can be especially challenging. While an owner of a condominium unit subject to the PAT tax will have the tax applied directly to his or her tax invoice, a cooperative housing corporation will initially have to pay the PAT tax itself and then pass the tax through to its tenant-shareholders. Cooperatives will have to potentially address issues regarding the collection of the tax from a tenant-shareholder if it is not paid.

The PAT tax may also complicate sales, development and lending transactions. To read more about the pied-à-terre tax and the initial determination letter, please visit  herrick.com/publications/pat-tax-initial-determination-letter-on-the-way/. 

Andrew B. Freedland is Partner, Co-chair Condominiums & Cooperatives at law firm, Herrick, Feinstein LLP. He can be reached at afreedland@herrick.com. Brett J. Gottlieb, partner at Herrick, Feinstein LLP, can be reached at bgottlieb@herrick.com. Mark A. Limardo, partner at Herrick, Feinstein LLP, can be reached at mlimardo@herrick.com.