Updates & Other Tidbits

NEW YORK TO TAX PIED-À-TERRE HOMES

New York will impose a yearly property tax surcharge on New York City homes worth $5 million or more. An exemption will apply if (i) the home is used as a primary res idence for the owner or for a family member of the owner or (ii) the home is rented out on full-time basis to an individual who uses the unit as a primary residence. The law is scheduled to sunset in 2031, but is likely to be extended.

An introduction to Part HH of the Budget Bill states:

Legislative findings. The residents of New York City and many who do business here contribute daily to the health and vibrancy of the city through their economic activity and the taxes they pay. How ever, many of the city’s most valuable homes are held as second homes, allowing the owners of those homes to reap considerable benefits from the city’s broader economy, from city services, and from a vibrant real estate market. The legislature finds that it is pru dent to impose a surcharge on the owners of these second homes to maintain important city services. The legislature further finds that this surcharge should be applied to second homes with values of $5 million or more when measured by the sales of comparable proper ties. Recognizing that many second homes in New York city have not historically been valued using comparable sales methods, the legislature finds that it is appropriate, for the initial phase of the sur charge, to impose the surcharge on such properties using current valuation methods and corresponding surcharge rates the legisla ture deems appropriate for this transitional period.

For the first two years, the new tax would target cooperative and condominium units with a property assessment value of $1.0 million or more, at a rate of between 4% and 6.5%. The property assessment value is significantly below fair market value for various local reasons.

After the transition period, the tax would be based on the estimated sales values at the following rates:

• Value of $5 million - $15 million: 0.8%
• Value of $15 million - $25 million: 1.1%
• Value of $25 million or more: 1.3%

A primary residence is defined as the use of a residential property or a residential cooperative dwelling unit (otherwise subject to the new surcharge) as a primary residence by

1. one or more of the owners or tenant-stockholders in a cooperative corpora tion, or an immediate family member of one or more of such owners, provided such owners are natural persons; or
2. one or more lessees, and any sub-lessees to which a lessee has sublet the property or residential cooperative dwelling unit, provided any such lessee or sublessee is a natural person occupying such covered property or residential cooperative dwelling unit pursuant to a bona fide lease agreement negotiated in an arms-length transaction with a term of not less than one year.

An “immediate family member” means a spouse, child, sibling, parent, grandparent, or grandchild.

Where the property is held in trust, a beneficial owner or owners of such trust will be considered to be the owner, provided that such beneficial owner or owners are the sole beneficiaries of such trust. Where the property is held by a partnership, corporation, or limited liability company, the (i) partner or partners, (ii) shareholder or shareholders or (iii) member or members of such partnership, corporation, or limited liability company are treated as owners provided that such partner or part ners, shareholder or shareholders, or member or members hold a majority interest in such partnership, corporation or limited liability company.

An initial determination of primary residence and notice to the owner is to be made by the department of finance by August 30,2026, with opportunity by the owner to prove that the real estate was a primary residence.

I.R.S. MULLS REQUIRING TAXPAYERS TO IDENTIFY CITIZENSHIP STATUS

According to anonymous sources in contact with an unnamed immigration lawyer, the I.R.S. is considering a change to Form 1040 (U.S. Individual Income Tax Return) to add a check-box that will be used to indicate whether the resident filer is not a U.S. citizen or has dual citizenship.

A noncitizen who holds a green card or is otherwise considered to be a U.S. tax resident under the substantial presence test is usually subject to the same tax ob ligations as a U.S. citizen, except to the extent a dual resident elects to apply a treaty tiebreaker test. There are some areas of U.S. tax law that treat U.S. citizens differently from tax residents who are not citizens. For example, U.S. citizens and long-term residents under the green card test are subject to exit tax. In comparison, residents under the substantial presence test are never subject to exit tax.

In another related development, the I.R.S. is considering changing how individual taxpayer identification numbers (“I.T.I.N.’s”) are coded. An I.T.I.N. is a U.S. tax I.D. number used by an individual who needs a U.S. tax I.D. but is not eligible to hold a Social Security Number. An example is an individual who is neither a citizen of the U.S. nor a tax resident of the U.S. who must file a U.S. nonresident tax return to obtain a refund of withholding tax.

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