Thousands of recipients have begun seeking exemptions from the surcharge

The city is sending notices to trusts and LLCs as it tries to identify owners who may owe the new property tax on second homes. A judge temporarily blocked the rollout on Monday while the court reviews claims that the city has not properly identified properties subject to the tax.

The surcharge targets homes worth $5 million or more and co-ops and condos worth $1 million or more when the owner is not a primary resident. It may also apply to some homes owned by trusts or LLCs even when a beneficiary or member lives there as a primary resident.

Trusts are commonly used to ease the burden on heirs or avoid estate taxes, while LLCs are favored by some homeowners seeking privacy. The city has said those arrangements can leave it without information about a property’s ownership, including the terms of a trust or the number of beneficiaries.

That uncertainty has led the city to send more notices than the tax will ultimately cover, according to the source material. Recipients are being asked to show whether they qualify for an exemption.

“Part of the point of this outreach from the Department of Finance is to ascertain whether or not that reflects a primary residence or not,” Mayor Zohran Mamdani said at a news conference last month. “One of the reasons that this is being done now is to ensure that New Yorkers have requisite time before the implementation of the surcharge.”

About 3,800 of the 17,000 people who received letters had started exemption applications roughly a week after the city began sending the notices, according to a spokesperson for Mamdani’s office. The city has said it is prepared to vigorously defend itself against the lawsuit.

The city’s rules allow an exemption when a home is owned by a trust with a sole beneficiary who occupies it as a primary residence. Beneficiaries with future interests, such as children who stand to inherit when a parent dies, do not need to live in the property, the city has said. A couple that transferred its primary home to a revocable trust should therefore qualify.

Some residents with those arrangements still received letters. One Park Slope resident and his wife said they were shocked after owning and living in their home and paying New York City income taxes for 42 years. Last year, each spouse transferred half of the house to a revocable trust in their name.

The letter said the property “may be subject to the new surcharge.” It cited a fiscal year 2027 market value of $5,479,000 and estimated the surcharge at $43,832 unless the owners received an exemption. The resident was applying through the website listed in the letter.

Michael Cohen said he received a notice for his condo at Trump Park Avenue on the Upper East Side. Cohen said the home is owned by a qualified personal residence trust, which has a single beneficiary by definition and should be exempt from the tax. The New York Post previously reported on Cohen’s letter.

Trust ownership accounted for about 28% of Manhattan home sales in 2024, according to data provider Attom. LLC-owned homes can qualify for an exemption when members who use the home as a primary residence own a majority of the LLC. Family members of those majority owners may also qualify the property for an exemption if they use it as their primary residence.

Irrevocable trusts can receive different treatment. John Pelet, an attorney at Loeb & Loeb, said a property in an irrevocable trust with three beneficiaries, including a parent and two adult children, could remain subject to the tax if one of the children lives there full time.

Pelet has advised clients in that situation to consider transferring the property to a new trust with the primary resident as the sole beneficiary, a process known as “decanting.” Another option could be for the primary resident to lease the property from the trust under a market-rate, one-year lease, though the trust could then owe income taxes.

“Are you cutting off your nose to spite your face?” Pelet said. “In a lot of cases, it’s not worth the complications.”