NYC struggles to enforce new luxury second-home tax amid opaque LLC ownership

Mayor Zohran Mamdani’s recently approved surcharge on high-value secondary residences is encountering implementation challenges because many owners hide behind limited liability companies (LLCs) and other entities. The Department of Finance’s general counsel, Michael Smilowitz, told a state court that more than half of the roughly 17,000 properties that received tax notices are held by trusts, partnerships, corporations or LLCs rather than by natural persons, making it difficult to verify primary-residence status.

The city estimates the tax could generate about $500 million a year, but officials warn that owners who remain undisclosed may avoid the levy, lowering projected revenue. Under the law, a property is exempt if the occupant holds a majority interest in the LLC listed in public records, yet accessing that information is often impractical for both the public and city staff.

A 2023 report by the reform group Reinvent Albany found that roughly 37 % of Manhattan homes are owned by LLCs. Although state legislators passed a bill requiring LLCs to disclose their true owners to the state, those details are not publicly available, limiting the city’s ability to enforce the tax.

The surcharge applies to stand-alone second homes valued at $5 million and to co-ops and condos worth at least $1 million that are not primary residences. Initial estimates suggested about 13,000 properties would be affected. So far, more than 4,000 owners have been exempted or removed from consideration based on updated income-tax data supplied by the state.

Three property owners filed a lawsuit on Aug. 7, alleging that the city’s rollout caused confusion and that the supplemental roll of nearly one million addresses exposed personal information. Four additional owners later joined the case.

"The city’s notion that the burden should be shifted to prove primary residency in such circumstances not only doesn’t pass the smell test, but is also illegal, since the state authorizing statute requires the city to make that determination, not pass the buck to try to ensnare people into paying the surcharge," former Deputy Mayor Randy Mastro said in an email.

A Staten Island judge initially paused the tax, but the city’s appeal allowed the Department of Finance to continue processing exemption applications and preparing for collection. The agency has extended the exemption-application deadline to Oct. 6 and added a notice to its website clarifying that inclusion on the supplemental roll does not automatically trigger the tax.