Will the pied-a-terre tax now make it cheaper to rent a market rate apartment rather than pay the tax if you own your unit without a mortgage?
I’m wondering if the tax will have an unintended consequence, out of towners selling their units and renting instead, thereby creating more competition for market-rate renters.
Say you have a $2M, 2 BR co-op assessed at $1M.
The 4% tax is $40,000; spread over 12 months it’s $3,333. Let’s call monthlies for a post-war unit described above at $3,500. Carrying costs are now $6,833.
You sell your pied-a-terre. Assume no taxes on the profit, as your profit will probably be less than $500k for two people. Your $2M in a conservative tax-free municipal fund will yield $80,000 per year, $6,667 a month.
The $6,667 plus the assumed monthlies of the former apartment ($3,500) adds up to over $10k a month, enough to rent a 2BR in a comparable “luxury rental” building with no ownership hassles.
Am I missing something here?