President Donald Trump escalated his dispute with New York City Mayor Zohran Mamdani on Tuesday, saying his administration is investigating whether the federal government can intervene to stop the city's new tax on high-value second homes owned by wealthy out-of-state residents. The threat follows a state court judge's decision to temporarily block enforcement of the tax, deepening uncertainty around a policy that has inadvertently ensnared thousands of full-time residents.
In a post on Truth Social, Trump argued that the tax is driving wealthy New Yorkers to Florida and Texas, costing the city and state far more in lost tax revenue than the levy could ever generate. He wrote that the money eventually collected would be "very little compared to the TAXES PAID by the tens of thousands of people who are fleeing the City, never to return."
Benjamin Williams, who leads the Property Tax Department at Rosenberg & Estis, told InvestmentNews that Trump "raises a legitimate economic question" about the tax's potential to push the ultra-wealthy out of New York. But he cautioned that it is too early to predict a mass exodus. "Anecdotally, I do have clients with true pied-à-terres who are considering selling them," Williams said. "Interestingly, though, the loudest complaints I’m hearing are from full-time New York City residents who can inadvertently get caught by the tax because of the unusual way the law treats trusts, LLCs and other ownership structures."
Trump said his team is "looking to see if the Federal Government has any legal right to avert this disaster, before it is too late, for the millions of people who cherish New York and want to see it thrive." However, Williams noted that there is no obvious unilateral power for the president to stop a state-administered tax. "This is a New York State law administered by New York City," he said. "Any federal challenge would need a specific constitutional or statutory basis."
Court halts rollout amid legal fight
Trump's comments came a day after Staten Island Supreme Court Justice Wayne Ozzi ordered the city to stop publishing a public list of roughly 960,000 properties flagged as potentially subject to the surcharge and to pause further enforcement actions. The order, reported by CNBC, was issued in a lawsuit filed by three homeowners and argued by attorney Randy Mastro. After the ruling, Mastro said the court's decision "vindicated the rights of hundreds of thousands of New York City homeowners who were subjected to a process they never should have been a part of in the first place," according to CNN.
Williams was not surprised by the legal challenge. "When a new tax of this significance is implemented on an accelerated timeline, with taxpayers receiving notices while important procedural and compliance questions are still being sorted out, litigation is an almost predictable consequence," he said. The city has vowed to appeal. Mayor Mamdani told reporters that his administration "looks forward to vigorously defend our city's position in court," adding that "we are confident in our position."
Williams believes the case is more likely to affect the timing of the tax than its long-term fate. If the city prevails, it may need to address procedural deficiencies and reset the process, but the tax itself is unlikely to disappear. "If the plaintiffs prevail, the City may have to pause, address the procedural deficiencies identified by the court, and reset the process," he said.
Tax sweep sideswipes thousands
The surcharge, approved by state lawmakers in Albany this spring, was designed to apply to one-to-three-family homes worth at least $5 million and co-ops or condos valued above $1 million that sit vacant or serve as secondary residences. City officials projected it could generate roughly $500 million a year, earmarked for affordability programs. But instead of the narrow group of second-home owners initially targeted, the city's Department of Finance mailed notices to 17,000 property owners over the past few weeks. A separate list identified nearly a million properties for potential review—far beyond Governor Kathy Hochul's office's earlier estimate of about 10,000 taxable second homes.
That mismatch has left many full-time, primary-residence homeowners fighting bills they say shouldn't have hit them, forcing them into an appeals process that varies depending on whether they are disputing residency status or the city's property valuation. Department of Finance Commissioner Richard Lee acknowledged the issue at a recent press briefing, saying, "We use existing information that we have, and it could have been that we don't have updated information on their applications."
A hearing on the lawsuit is scheduled for the end of the month. In the meantime, Williams is encouraging property owners who received the original July surcharge notices to keep their paperwork moving and not sit still. For advisors, the situation underscores the importance of reviewing clients' property ownership structures, especially those involving trusts and LLCs, which may inadvertently trigger the tax. As the legal battle unfolds, the outcome could have broader implications for how cities tax high-value real estate and for the financial planning of wealthy clients. For more on the initial misfire, see our earlier coverage. And for context on how such regulatory uncertainty affects investor behavior, check this survey on recession fears.
