Pied-à-Terre Tax Exemptions: Preparing for January 2027 DOF Filing

New York state's Pied-à-Terre tax applies to a "covered property" in New York City that is not the "primary residence" of a "covered owner." Covered properties generally include one-, two- and three-family homes (Class 1) and residential cooperative (co-op) and condominium units (Class 2) that exceed the applicable market value thresholds. The tax was effective July 1, 2026, uses an initial application date of January 5, 2026, and is scheduled to sunset on June 30, 2031, unless the New York Legislature extends it.

This summer, 17,000 New York City property owners received notices that their home may be subject to the new tax as a result of Sections 1350 to 1356, titled "City Surcharge on Property That Does Not Serve as a Primary Residence," being added to the law. Any owner who received a notice but did not think that their property should be subject to the tax had an option to apply for an exemption. There were two separate application venues: the first an application for exemption through the New York City Department of Finance (DOF) portal and the second an application to the New York City Tax Commission to either contest the valuation of the property or appeal the decision of DOF. The deadline to apply for an exemption for the 2026-2027 tax year through the DOF portal was October 13, 2026. If an owner disagrees with DOF's determination or wishes to contest the valuation of their property, the deadline to file with the Tax Commission is in March 2027.

Who Qualifies for an Exemption

Whether a property is subject to the tax turns on who the law treats as its owner. A "covered owner" includes:

• the owner of a home
• a co-op tenant-shareholder
• a condominium unit owner
• the beneficial owner or owners of a trust, provided they are the "sole beneficiaries" of the trust
• the partners, shareholders or members of a partnership, corporation or limited liability company (LLC) who together hold a majority interest in the entity that owns the property

A property is exempt from the surcharge if, as of the January 5, 2026, date, it was used as a primary residence by any of the following:

• a covered owner who is an individual
• an "immediate family member" (spouse, child, sibling, parent, grandparent or grandchild) of a covered owner who is a natural person
• a tenant or subtenant occupying the property under a bona fide, arm's-length lease of at least one year at fair market rent
• the sole current beneficiary or beneficiaries of a trust that owns the property (contingent and remainder interests are disregarded)
• the holder or holders of a collective majority interest in an LLC, a corporation or partnership that owns the property, or
• an "immediate family member" of the holder or holders of a collective majority interest in an LLC, a corporation or partnership that owns the property

DOF's Final Rules Narrow Eligibility

DOF's final rules added important limitations. Only one entity may generally sit between the individual and the property; an individual cannot establish primary residency through a multi-tier entity and/or trust ownership structure. DOF's commentary also states that the trust and entity provisions "do not allow the immediate family members of trust beneficiaries or groups of individuals to satisfy primary residency requirements." To determine primary residency, DOF primarily looks to the permanent home address on an occupant's most recent state or federal income tax return and driver's license but may also consider days of occupancy, filings with other New York City agencies, and the address on state-issued or voter identification.

For buyers, the way title is taken at closing – individually or through an LLC or a trust – will determine whether the property qualifies for an exemption for years to come.

Planning for 2027

The exemption status is determined as of January 5 immediately preceding each fiscal year. That means the next key date is January 5, 2027, for the 2027-2028 tax year. Owners have a window now to review their ownership structure and assemble the documentation needed to support an exemption going forward, including tax returns, driver's licenses, trust agreements, operating agreements and proof of family relationships.

Applying the statute, the final rules and DOF's commentary to real-world ownership arrangements have not been straightforward, and the DOF portal does not always offer an option that fits a family's actual structure. Drawing on exemption applications Holland & Knight recently prepared and had approved by DOF, the following three structures resulted in exemptions. Client details have been omitted to protect privacy, and none of these examples is offered as a guarantee of an exemption.

Immediate Family Member of a Revocable Trust Beneficiary Occupying the Property

One of the more significant outcomes involved a Manhattan apartment owned by a mother's revocable trust, of which she is the sole beneficiary during her lifetime. The beneficiary lives full time outside of New York City, but her daughter lives in the apartment full time.

Under the published rules, this structure did not qualify. Though an immediate family member of an individual or an entity's majority owner may occupy the property, this is not the case for trust ownership. The commentary with DOF's final rules states that "family members of trust beneficiaries are not considered as permissible covered owners" and that the trust provisions do not permit immediate family members of trust beneficiaries to satisfy the primary residency requirement. The DOF portal also did not provide an option for a family member of a trust beneficiary to apply. Even so, an exemption was obtained.

The DOF portal provides form affidavits to use in applying for an exemption. However, the Holland & Knight team modified the Trustee Affidavit to explain that the revocable trust is really akin to a disregarded LLC because it uses the grantor's Social Security number as its taxpayer identification number. It is possible that in practice, DOF is treating a revocable trust much like the individual who created it or similar to a disregarded LLC so that an immediate family member of the trust's beneficiary may satisfy the primary residence requirement.

The takeaway here is that families who hold a New York City apartment in a revocable trust for estate planning purposes and whose child or parent lives there may be eligible for an exemption from the tax. Because this outcome is in tension with the published rules, it may not be applied consistently and could be revisited by DOF, so owners should also consider fallback strategies, such as a bona fide lease at fair market rent.

Multi-Tiered Ownership with a Revocable Trust as Majority Interest Owner

In another significant outcome, a Manhattan condominium unit was owned by a single-purpose LLC. The majority interest owner of that LLC was not an individual but the owner's revocable trust, of which the owner served as both trustee and beneficiary. The owner himself lived outside New York, while his son lived in the apartment as his primary residence.

On its face, this structure had two issues. The first issue was that the structure had two layers between the individual and property because the apartment is owned by an LLC whose majority interest owner is a trust. This runs counter to DOF's statement that primary residency cannot be established through a multi-tier structure. Nevertheless, the application, filed on the basis that an immediate family member of the LLC's majority interest holder occupied the unit, resulted in an exemption. The second issue was that the primary resident was an immediate family member of a trust beneficiary, which also is not permitted. This application was supported by 1) a Majority Interest Affidavit sworn by the LLC's manager and modified to explain the structure, confirming that the revocable trust was the LLC's majority interest owner and that the manager was the trust's trustee and beneficiary, 2) the LLC operating agreement, 3) the trust agreement and 4) a separate affidavit confirming the parent-child relationship with the occupant.

The takeaway here is that where an LLC owns the property, a revocable trust holding the majority LLC interest, with the individual as trustee and beneficiary, may be treated as the functional equivalent of the individual for purposes of the majority-interest test and immediate family test.

Trust with Multiple Beneficiaries, 1 of Whom Occupies the Property

The law requires that an occupying beneficiary or beneficiaries be the "sole beneficiaries" of the trust that owns the property to qualify for an exemption. The DOF portal is phrased the same way. The published guidance has cautioned that a trust with multiple current beneficiaries may not qualify if not all of them reside in the property. In practice, however, DOF approved an exemption for a Manhattan townhouse owned by a trust where one beneficiary out of four beneficiaries used the property as her primary residence.

The application identified the trust as owner and listed the occupying beneficiary as the resident. It was supported by a notarized Trustee Affidavit that the Holland & Knight team modified so that the trustee affirmed that he is a trustee of the trust holding title to the property and that the occupant "is a beneficiary of such trust," not that she is its sole beneficiary.

The takeaway here is that DOF did not appear to require that every beneficiary of a trust live in the property; an exemption was obtained where only one beneficiary out of four beneficiaries used the property as her primary residence. Further, the trust documentation did not specifically list the beneficiary.

Conclusion

Recent Holland & Knight experience filing exemption applications through the DOF portal shows that DOF approved a broader range of ownership structures than a strict reading of its published rules might suggest. Please note that prior DOF responses do not establish precedent and should not be relied on. This analysis assumes that DOF does not change its position.

For more information or questions, please contact the author.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.