Rich New Yorkers trying to dodge the new tax on second homes slam into a harsh reality

Among New York City's wealthiest homeowners, the stages of grief over the city's hotly contested "pied-à-terre tax" go something like this: First, anger at the chaotic rollout. Then denial, as they pepper lawyers and tax advisors with various versions of "How can they do this?" Bargaining follows, as they hunt for loopholes or long-forgotten documents to plead their cases.

Some can afford to jump straight to the final stage: acceptance. The uber-elite may brush off the new tax, levied on second homes worth at least $5 million, as merely another line item tacked onto their vast portfolios. For most others, however, coming to terms with Mayor Zohran Mamdani's new policy will be more of a journey.

"People do not like hearing the word 'tax,'" Steven Cohen, a longtime luxury real estate agent, tells me.

Those hoping to sidestep the extra bill are running into a big problem: The new tax leaves little daylight for the kinds of workarounds that rich, absentee property owners are floating to their trusted advisors.

"People are trying to get a little creative," says David Fitzhenry, a local real estate attorney who advises high-net-worth clients. "But the way the statute is written, there's not a lot of room for creativity."

Add in the fact that New York City bureaucrats are famously aggressive in chasing down residents whose travel schedules could expose them to the city's steep income tax, and you're looking at a bunch of crestfallen millionaires and billionaires.

"I have one client who said, 'Well, they don't know that I live in Florida,'" recalls Fitzhenry. "I said, 'Where do you file your tax returns?' He says, 'In Florida.'"

Fitzhenry chuckles. "That's a tough sell."

Attorneys and accountants have been fielding concerned calls from wealthy homeowners since mid-April, when Mamdani strode in front of the ultra-luxe condo tower at 220 Central Park South — the site of a $238 million penthouse owned by hedge fund tycoon (and noted Miami resident) Ken Griffin — and reiterated his pledge to "tax the rich." Wringing more dollars from the cushy, largely empty crash pads that dot the five boroughs has long been a point of fascination among those who believe the wealthy should contribute a few more coins to the city's coffers. Previous stabs at a second-home tax, most notably in 2019, gained some traction but ultimately fizzled. This time, though, Mamdani and Gov. Kathy Hochul had the juice: In May, the state legislature passed an annual "pied-à-terre tax" on pricey New York City properties whose owners don't use them as their primary residence.

For the first couple of years, the tax will apply to one-, two-, and three-family homes worth more than $5 million, as well as condos and co-ops valued by the city at more than $1 million. One important detail: The city has a formula for valuing condos and co-ops that estimates how much income they could generate as rentals and then uses that number to calculate a total dollar figure. These wonky city valuations typically amount to a fraction of the true market value, meaning that a condo valued by the city at $1 million could very well fetch five times that amount in a sale.

For such high-dollar domiciles, even a modest tax can yield a hefty haul. Griffin, for instance, could shell out an extra $1.3 million to $1.4 million next year for his three New York City holdings, my Business Insider colleagues calculated. The mayor's office has said it expects the tax to bring in about $500 million annually.

The rollout this summer spurred another round of angst and recrimination. First, the city began sending ominous letters to thousands of homeowners, warning that they may be subject to the additional bill. Then came an easily searchable list of more than 900,000 New York City properties, along with their owners and valuations. Though the list merely cobbled together already publicly available data, it did make it easier for anyone to ogle their neighbors' homes, and it stoked plenty of outrage among those caught up in its swirl — including many New York residents who won't actually be on the hook for the tax.

"They're really angry," Andrew Jagoda, a real estate attorney, says of some of his clients. "Less sometimes about the tax, though there's certainly that, but about how the city went about doing it and how embarrassed they are."

A lawsuit filed in early August by three New York City homeowners briefly halted the process, but the city quickly appealed, and the rollout continues as the case works its way through the courts (a formal hearing is scheduled for later this month). Notably, the lawsuit doesn't challenge the underlying statute, and the dozen advisors I spoke with say they're telling clients to proceed as if the city will eventually collect its due. "Clients should be prepared for the worst here," Fitzhenry tells me.

The private-jet-setting crowd is used to playing a game of cat and mouse with cities and states eager to claim their fair share of income. The rich meticulously track their time spent in various locations to make sure they don't hit the number of days that could put them on the hook for, say, New York taxes, while on the other side, government employees pore over cellphone records and credit card statements to see if they can make a case to the contrary. This battle can lead globetrotters to embrace some goofy yet indispensable tricks of the trade: installing phone apps that warn when they're approaching resident status, for example, or strategically planning trips so they spend as little time as possible physically present in New York to stay under the 184-day threshold. "Every day counts," says Marisa Friedrich, a New York-based tax advisor. "Even if you're arriving super late on a Monday, you fly in at 11 p.m. — you just created a day for yourself in New York."

Rich property owners who have spent years deftly steering clear of New York income taxes now find themselves in the crosshairs of a different type of levy. Even longtime New Yorkers may get hit with the pied-à-terre surcharge. As the name would suggest, you only get one primary residence, which means that you could live full-time in the city and still face the extra bill if you own multiple properties about town — a fact that has come as a shock to some proud (and wealthy) residents.

"There is a lot of confusion and anger and surprise all built into one for each of these taxpayers," Friedrich tells me. "I don't think anyone that I've spoken to can say that they're happy about it."

There's a simple way for property owners to dodge the tax in the future: fill the apartment. If an immediate family member is living in the home, or if it's leased to a tenant who treats it as their primary residence, then there is no extra bill. If the place is owned by an LLC and the majority stakeholder lives there, it's also in the clear. There's a similar exemption for a home owned through a trust, another common arrangement, if it's occupied by the trust's sole beneficiary.

So let's say you live in Florida but keep a plush Manhattan penthouse valued by the city at $5.3 million (I know, but stick with me here). If you're looking to wriggle out of the additional levy — in this case, more than $340,000 on top of your regular property-tax bill — you've got a handful of options. You could have one of your adult children relocate there, or invite your sister to move in. You could rent the place out to a fellow high-flyer willing to pay tens of thousands of dollars a month in rent. If you want to merely save a few bucks, you could protest your property's valuation and see if the city will knock down its assessment. Maybe you ditch Florida in favor of the Big Apple, though that would likely come with a bigger tax hit, since you'd be subjecting yourself to New York income taxes. Or, of course, you could sell. And that's… sort of it.

"There's not going to be a whole bunch of clever ideas on how to beat it," Fitzhenry tells me.

A bogus lease spun up simply to avoid the tax likely won't pass muster with the city — it has to be an "arm's length" deal, which means you can't have your friend say they live there and charge them $1 a month. In a similar vein, your cousin can't step in and save the day by moving in — immediate family members only. And you can imagine why none of the viable options would sound all that appetizing to someone with enough in their bank account to have a penthouse to their name.

There's not going to be a whole bunch of clever ideas on how to beat it.David Fitzhenry, New York-based attorney

"You have to keep in mind, most of these people are not mom-and-pop," Jagoda tells me. They're not paying off a mortgage and raising kids in that home like most Americans — they just want a nice place in the city where they can come and go as they please. "You're talking about very wealthy people who have a variety of assets worth far more than this," Jagoda adds. Ellen Sykes, a longtime real estate agent, offers a similar assessment of her clients, many of whom own homes in the $4 million to $8 million range. "They're not pleased. They're going to try and find a workaround," Sykes tells me. "But they can afford it, so they're not terrified."

Among the roughly 17,000 who received letters warning they could be on the hook for the tax, many are arguing that the property in question is, in fact, their primary residence. Once the city flags a home as a potential candidate for the pied-à-terre tax, the burden is on the owner to prove otherwise. Jagoda says he has a few clients who are rifling through filing cabinets, searching for decades-old documents that outline the ownership structure and can prove the property qualifies for an exemption. Those who find themselves in this camp are "pissed off," Jagoda tells me. "They have to do this because the way the city set it up, you're guilty until proven innocent."

One thing these lawyers, accountants, and real estate agents aren't buying into: the threatened New York City exodus. The rich may talk a big game about pulling up stakes when their tax bills swell, but there's a lot to keep them owning — and spending — in the city. "It's similar to during COVID when they said, 'Oh, everyone's leaving,'" Cohen, the real estate agent, tells me. "Everyone didn't leave." The exceptions, he notes, are those who might have already had one foot out the door. So far, he says, only one of his clients is selling due to the tax. Even then, they'd already been talking about offloading the property, which they'd used only a handful of times in roughly eight years.

"They can well afford it, but they also don't want to be wasting money, either," Cohen tells me.

For purposes of this year's tax bill, most of this is a moot point — the city is making determinations based on a property's status as of January 5, 2026. Any maneuvers to avoid the tax will, at best, apply to the following year's bill. And while the options for property owners to sidestep the tax may be limited, plenty still find themselves in weird gray areas: Say they've been renovating their primary residence for the past year and living elsewhere, or are stuck sorting out the details of particularly complicated estate planning, like a house owned by an LLC that is then held by a trust. Those types of multi-tiered structures may not work under a strict reading of the rules, Max Biedermann, a New York-based lawyer, tells me, leaving some owners to appeal to reason rather than to law. Co-ops present another thorny situation: While the city may calculate the additional tax for individual units, the entire building gets hit with the extra bill. It's up to the co-op's board to then collect from individual pied-à-terre owners.

"All these other people are getting hit with shrapnel," says Eric Wohl, an attorney who specializes in advising co-op boards.

While there's still plenty of mess to sort out — and thousands of property owners still fuming at the new mayor — it appears that the new tax will be fairly successful in carrying out the mission laid out by Mamdani in the shadow of Ken Griffin's penthouse back in April.

"Yes, it's totally a nuisance," Jagoda concedes. "But it's easier than fighting City Hall."

James Rodriguez is a correspondent on Business Insider's Discourse team.