NYC's plan to tax luxury second homes, explained

• Gov. Kathy Hochul and Mayor Zohran Mamdani proposed a new tax on wealthy second-homeowners.
• The tax is expected to generate $500 millon in annual revenue.
• NYC's comptroller forecast a $2.2 billion budget shortfall in 2026.

New York City Mayor Zohran Mamdani is following through on one of his most divisive campaign promises: tax the rich.

Mamdani and Gov. Kathy Hochul introduced a new pied-à-terre tax proposal on Wednesday. The tax, which requires legislative approval, would affect residents who own a secondary property in New York City valued at over $5 million but live elsewhere. It's the first of its kind for New York state.

The proposal drew swift ire from some members of the upper echelon, including President Donald Trump. He, alongside other billionaires like Citadel CEO Ken Griffin, could be directly affected by the tax. Griffin purchased a Midtown penthouse for $238 million in 2019, while Trump owns properties in New York.

"Sadly, Mayor Mamdani is DESTROYING New York! It has no chance! The United States of America should not contribute to its failure," Trump wrote in a Truth Social post on Thursday.

The Mayor's Office of New York City said it expects the policy to generate $500 million in annual revenue.

Here's what we know so far.

Why are Mamdani and Hochul taxing the rich?

The Mayor's Office of New York City said the tax will address the city's multi-billion-dollar budget gap.

In January, New York City Comptroller Mark Levine said the city is facing a $2.2 billion budget shortfall for the 2026 fiscal year. He projected a $10.4 billion gap for the 2027 fiscal year.

"This is the first time since the Great Recession that the City faces a budget shortfall of this magnitude this late in the fiscal year, presenting serious challenges for the City's budget," the comptroller's office said in a press release.

The comptroller's office said the city's economic outlook was not the reason for the budget gap. Rather, it blamed former New York City Mayor Eric Adams' administration. Specifically, spending levels that exceeded revenue and a failure to properly budget for known and recurring expenses.

New York State Comptroller Thomas P. DiNapoli urged city officials to address the budget in March.

"The city should take steps to balance its budget without depleting reserves during a projected period of economic growth, which would signal fiscal stress and leave it less prepared for when a rainy day arrives," DiNapoli said in a press release.

The offices of Governor Hochul and Mayor Mamdani did not immediately respond to Business Insider's request for a comment.

Where will the money go?

The proposed tax is projected to generate $500 million in revenue that will be diverted to city services.

During a press conference on Friday, Mamdani said the money will be used to fund "essential city services like free child care, cleaner streets, and safer neighborhoods."

The Hochul Administration said on its website that "as New York City faces a significant budget gap, the Governor's proposal will generate much needed revenue for the city without impacting every day New Yorkers."

Lawmakers make the call

The proposed tax would need to be approved by both the New York State Assembly and the State Senate before it can go into effect.

The measure is being negotiated as part of the broader state budget process, where it has emerged as a potential compromise to help close New York City's multibillion-dollar deficit, which has been delayed.

One of the major questions that lawmakers will discuss is whether it will be a bracketed or flat tax. The New York Times reported that one proposal under discussion would set tiered tax rates: one rate for pieds-à-terre valued between $5 million and $15 million, a higher rate for those valued between $15 million and $25 million, and an even higher rate for those valued at $25 million or more.

The state has not yet explained how it would assess a home's value, determine whether it is a primary residence, or calculate how much owners would owe.

While explicit second-home taxes are rare in the US, some states already tax them more heavily through indirect means, like South Carolina, which assesses primary residences at a 4% rate and non-owner-occupied properties, including second homes, at 6%. And in cities like Boston, homeowners may qualify for a residential exemption on their primary residences.

What makes this proposal distinct is that it would impose a direct, targeted surcharge on high-value, non-resident properties.