New York passes Mamdani's pied-a-terre tax. 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Here's who pays and how muchPublished Thu, May 28 20269:35 AM EDTUpdated 47 Min AgoRobert Frank@robtfrankWATCH LIVEKey PointsState lawmakers passed a tax on nonprimary residences in New York City in order to help close the city's budget gap.The so-called pied-a-terre tax will be imposed on second homes valued at $1 million or more and will take effect in two different phases. Billionaire and Citadel CEO Ken Griffin became the face of the tax after New York City Mayor Zohran Mamdani posted a video in front of Griffin's penthouse apartment announcing the tax.The 220 Central Park South building, center, stands in New York, U.S., on Wednesday, Jan. 23, 2019. Just days after buying one of the most expensive residential properties in London, Citadel founder Ken Griffin set a U.S. record with the $238 million penthouse at 220 Central Park South.Jeenah Moon | Bloomberg | Getty ImagesNew York City's new tax on second homes will more than double property taxes owed by many wealthy luxury apartment owners, according to tax experts.State lawmakers on Wednesday passed the tax on nonprimary residences in order to help close the city's budget gap. The so-called pied-a-terre tax will be imposed on second homes valued at $1 million or more. It's expected to raise $500 million in revenue.Details on the tax obtained by CNBC show that the property tax would take effect in two different phases. In the first two years – the tax years 2026-2027 and 2027-2028 – condos and co-ops valued at more than $1 million by the city's Department of Finance will be subject to the tax. Properties worth between $1 million and $3 million will face a 4% annual tax; properties valued at $3 million to $5 million will face a 5.25% tax; and those above $5 million will face a 6.5% tax.While the tax seems large, experts say the city's antiquated assessment and valuation system dramatically undervalues properties, reducing the burden. City valuations can often be 10% or less of the true market value, they said.Get Inside Wealth directly to your inboxThe Inside Wealth newsletter by Robert Frank is your weekly guide to high-net-worth investors and the industries that serve them.Subscribe here to get access today. Rather than overhaul the system immediately, the city will gradually update valuations – and the tax – according to the budget documents. Starting in the 2028-2029 tax year, the property values will be based on comparable sales. Since valuations will skyrocket, the tax rates will fall to compensate.After the valuation adjustments, properties worth between $5 million and $15 million will be subject to a tax rate of 0.8%; properties between $15 million and $25 million will be taxed at 1.05%; and properties over $25 million will be taxed at 1.3%, according to the budget plan."It's incredibly complicated," said Robert Pollack, a New York property tax attorney with Marcus and Pollack LLP.Billionaire and Citadel CEO Ken Griffin became the face of the tax after New York City Mayor Zohran Mamdani posted a video in front of Griffin's penthouse apartment announcing the tax. Griffin fired back, threatening to pull back business and jobs from New York in the future. watch nowVIDEO5:1305:13Ken Griffin: We will create jobs in Miami as a consequence of NYC Mayor Mamdani's wealth tax videoThe ExchangeUnder the new tax, Griffin — who is a tax resident of Florida — would see his Manhattan property tax bill more than triple, according to CNBC calculations. Griffin purchased his 24,000-square-foot penthouse at 220 Central Park South in 2019 for $238 million. However, according to government records, the city values the apartment at just $15.5 million. Griffin's property tax bill for the 2026-2027 tax year is $858,332, according to city records. In the first two years of the pied-a-terre tax, Griffin's property tax bill would more than double to $1.87 million, according to Pollack. Starting in the 2028-2029 tax year, it would increase to just under $4 million.Griffin also purchased two apartments at 740 Park Ave. for a total of $83 million, according to reports. The tax on those units would be $1.1 million starting in 2028, bringing his total Manhattan property tax bill for all his properties to more than $5 million.While the city's politicians say the wealthy can afford it, real estate brokers and tax attorneys say the sticker shock will be significant."All my clients already feel like they pay too much," Pollack said. "These numbers are significant. 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New York has enacted the Mamdani's pied-a-terre tax, a levy targeting nonprimary residences within the city to help address the municipal budget deficit. This tax is scheduled to be imposed on second homes valued at $1 million or more and will be implemented in two distinct phases. The structure of the tax varies based on property value, and the overall framework is complicated by the city's existing assessment and valuation system.

In the initial two phases, spanning the tax years 2026-2027 and 2027-2028, the tax applies to condos and co-ops exceeding one million dollars. The rates are tiered based on the property's value: properties between one million and three million dollars face a four percent annual tax, those valued between three million and five million face a five point two five percent tax, and properties valued above five million face a six point five percent tax. However, tax experts note that the city's antiquated assessment and valuation methods often result in properties being undervalued by ten percent or less compared to their true market value, thereby mitigating the actual financial burden for owners.

The city plans to gradually update these valuations and the corresponding tax rates based on comparable sales data, beginning in the 2028-2029 tax year. This adjustment process is designed to align valuations with market realities, and the tax rates are expected to decrease to compensate for the projected rise in property values. Under this future valuation plan, properties valued between five million and fifteen million dollars will be taxed at zero point eight percent, properties between fifteen million and twenty-five million dollars will be taxed at one point zero five percent, and properties valued above twenty-five million dollars will face a one point three percent tax rate.

The tax was made public following an announcement by New York City Mayor Zohran Mamdani, which was notably publicized in relation to the assets of figures such as Citadel CEO Ken Griffin. For high-net-worth individuals, the consequences of this tax are substantial. For instance, calculations suggest that Ken Griffin's Manhattan property tax bill could more than triple under the new regime. Specific calculations related to Griffin's assets illustrate the potential impact, indicating that his property tax bill for the first two phases could reach approximately one point eight seven million dollars, and starting in the 2028-2029 tax year, it is projected to increase to just under four million dollars. Furthermore, considering Griffin's total Manhattan property holdings, the tax liability for his properties could exceed five million dollars.

Real estate professionals and tax attorneys contend that while city politicians assert the wealthy can absorb the cost, the numerical implications represent a significant financial shock. Robert Pollack, a New York property tax attorney, emphasized that the figures are significant regardless of wealth, suggesting that existing valuations already place an undue burden on property owners. The plan involves a complex interplay between municipal fiscal needs, real estate valuation methods, and the financial realities facing the city's affluent property owners.