The Pied-à-terre Tax Surcharge: What Steps Must My Cooperative Take Now?

Legal Alert

July 29, 2026

This memorandum addresses two specific issues arising for cooperatives under the newly enacted pied-à-terre tax surcharge (“Surcharge”). The Surcharge, which will apply on a fiscal year basis, took effect on July 1, 2026, and applies to apartments over specified values that are not used as a primary residence. The Surcharge is imposed on the cooperative, which must, in turn, seek reimbursement from those apartment owners subject to the Surcharge. Any cooperative with apartments over the specified values should adopt forms, with counsel’s assistance, to assure that in connection with apartment sales, the cooperative will be reimbursed by the purchaser or seller for any Surcharge that may be assessed against the apartment.

How is the Surcharge Actually Computed?

Our best information at present is that the Surcharge for tax years 2026-2028 will be computed by reference to three numbers:

The “Estimated Market Value” listed on the Department of Finance (“DOF”) real estate tax bill to the Cooperative.
The total number of shares issued and outstanding for all apartments in the building.
The number of shares issued to the specific apartment for which the Surcharge applies.

Divide the Estimated Market Value by the total number of shares to get a per share value.

Multiply the per share value by the number of shares issued to the specific apartment to get an apartment value.

If the resulting apartment value is greater than $1,000,000, a Surcharge will likely be due if the apartment is not an eligible primary residence. The Surcharge amount is the applicable tax percent multiplied by the apartment value. During “Phase One” of the Surcharge (tax years commencing July 1, 2026 and July 1, 2027) the tax percentage is 4% on apartment values of $1-3 million; 5.25% on values of $3-5 million, and 6.50% on values greater than $5 million. The computations will change commencing with tax years on and after July 1, 2028. Boards should consult with their management company about the Surcharges that may be due for apartments in the building. Individual shareholders should consult with their financial advisor or accountant about their potential Surcharge payment.

How Does a Board Protect Against Tax Bills Tendered or Retro-active Tax Audit Surcharges After Apartments Have Been Transferred?

The DOF has six years in which to audit claims of primary residence and therefore exemption from the Surcharge. How does the cooperative protect itself from Surcharges imposed after an apartment has been sold and the seller cannot be located or when there is a dispute among the seller, purchaser/current owner and the cooperative as to reimbursement?

Liability for Surcharges Imposed for the Tax Year in Which the Transfer Occurs

Unless clarified to the contrary by rules or revisions, the Surcharge is computed based on the status of the apartment (its value and occupancy) as of the January 5 prior to the July 1 first billing for the fiscal tax year. Inevitably, there will be apartment sales during the tax fiscal year (July 1 – June 30) and questions may arise as to who is responsible to reimburse the cooperative for the Surcharge due for the tax year in which the transfer takes place. It is not clear how and when the Surcharge will be billed by the DOF to the cooperative, with retroactive effect to July 1, 2026.

To address this uncertainty and risk of dispute and delay in reimbursement, the board and management should consider adopting additional requirements in its apartment transfer application packages and closing forms to clearly allocate the responsibility and to provide security for reimbursement. A variety of options are available, and template documents can be prepared, which may vary depending on the characteristics of the building. Once adopted, it is important to make sure these new requirements and/or forms are included with the cooperative’s standard purchase application materials in order to comply with recently enacted rules with respect to timing and disclosure for purchase applications (NYC Local Law 58, the Co-op Timing Bill).

Liability for Surcharges Imposed as a Result of Later Audits

A similar issue may arise from audits of primary residence claims and Surcharges imposed by the DOF if a claimed primary residence exemption from the Surcharge is disallowed. The issue may arise infrequently, but the amount of the potential Surcharge, covering multiple years, may be substantial. Again, absent DOF rules or amendments to the law, the Surcharge is billed to the cooperative. Accordingly, the burden falls upon the cooperative to seek reimbursement from either the long-departed apartment seller or the mightily surprised and unhappy current owner.

It is generally believed that the DOF will determine the residency status of lessees of cooperative apartments by reference to the annual coop/condo tax abatement filings of the cooperative and be able to compare primary residences listed on the abatement filing form to records of resident and non-resident income tax filings. It will likely become complicated when the Surcharge exemption is claimed based on the primary residence of a tenant or family member who may not have been an income tax filer.

The board of directors and management should again consider adopting requirements for apartment transfer closings to allocate responsibility for any potential retro-active Surcharge and to substantiate primary residence status of the selling shareholder. Template documents and standard procedures can be adopted to do so, which may vary depending on the circumstances of your building.

Boards should consult with management and counsel pro-actively to anticipate and address these potential issues. You may contact any member of Smith Gambrell’s cooperative and condominium practice group with questions or for assistance.