The Second-Home Tax Is Spreading—Is Your Vacation Property Next?

New York Gov. Kathy Hochul announced a handshake budget deal this week that includes a controversial pied-à-terre tax on second homes in New York City.

The move reflects an increasingly popular tactic for lawmakers facing affordability crises that are squeezing constituents while blowing holes in state budgets. Rather than taxing the rich directly through higher income or corporate taxes, they’re taking aim at one of their most visible symbols of wealth—the second home.

But how and where these taxes are levied is another story entirely. There are at least four mechanisms for second-home taxes, and active or proposed versions exist in at least eight states.

As these taxes spread, the bigger question may be whether or not they actually work.

"Economically, these taxes don't really make any sense,” Abir Mandal, senior policy analyst at the Tax Foundation, tells Realtor.com®.

While second-home owners may be an easy target, these taxes often fail to produce the revenue promised or deliver real affordability for residents, Mandal adds.

Where second-home taxes exist—and where they’re headed

Cameron LaPoint, assistant professor of finance at the Yale School of Management, says there was a surge in second-home taxes across the globe in the early 2010s. As financial markets became more integrated following the 2008 financial crisis, many nations grew concerned that an influx of outside capital would displace residents.

If that sounds familiar, it’s for good reason. Many U.S. states are facing similar pressures today, as persistent housing shortages—now estimated at 4.03 million units nationwide—drive up prices and squeeze out local buyers.

Unsurprisingly, the states currently implementing second-home taxes are among those most pinched by the shortage: California, Hawaii, Montana, New York, Rhode Island, South Carolina, Vermont, and the District of Columbia.

Of those states, only South Carolina, Vermont, and Washington, DC, scored passing grades on their affordability report card from Realtor.com—earning an A and two C-’s, respectively. The remaining states all scored in the bottom 10 nationwide, with grades of D or lower.

While a shared affordability crisis links these regions, the levying authority remains far from uniform. Only four jurisdictions—Rhode Island, Montana, Vermont, and South Carolina—apply such taxes at the state level. The rest favor home-rule approaches where local municipalities take the lead.

In Hawaii, for example, every county levies a higher property tax rate on second homes, but the rates vary by island. Honolulu, for instance, triggers a higher tier for properties valued over $1 million, while Hawaii County does so at $2 million.

The list is only poised to grow as the affordability squeeze deepens.

In June 2026, San Diego voters will decide on Measure A, which proposes a flat tax starting at $8,000 for vacant second homes. San Francisco is weighing a similar reinstatement of its vacancy tax following recent court challenges.

How second-home taxes are levied

Part of the difficulty in tracking second-home taxes is the sheer variety of ways they are levied—a diversity that mirrors the local conditions that inspired them.

In tourism hot spots like Montana, Hawaii, and South Carolina, a higher property tax burden seems to be the preferred method. This strategy functions exactly as it sounds: Nonprimary residents are placed in a different tax bracket and pay a higher base rate than local homeowners. 

Meanwhile, New York City and Rhode Island are prioritizing property tax surcharges, which act as an additional layer of tax hitting the full value of the home on top of standard assessments.

While the fine print for the New York City proposal is still being finalized, Rhode Island offers a glimpse of what it could look like.

Under the current law, non-owner-occupied properties valued over $1 million face an annual surcharge of $2.50 per $500 of assessed value. It's been nicknamed the “Taylor Swift Tax” because the singer's Watch Hill mansion could reportedly trigger a yearly surcharge of approximately $136,000.

It's worth noting that several other jurisdictions—such as New Jersey and Los Angeles—levy similar "mansion taxes" on high-value transfers. However, these are generally one-time fees triggered only at the point of sale and apply to all homeowners, even primary owners.

Do second-home taxes work?

The looming question is whether these taxes actually deliver on their promises. According to both Mandal and LaPoint, the evidence is thin when it comes to both aiding affordability and plugging revenue holes.

It's an especially critical consideration for New York City, where the proposed pied-à-terre tax is intended to help close a budget deficit exceeding $5 billion.

Even the Comptroller’s Office has signaled caution, acknowledging that behavioral changes and market fluctuations could reduce the promised $500 million in annual revenue to as little as $340 million.

A big part of the problem, Mandal notes, is that these taxes target the demographic with the most flexibility.

"Such taxes never provide the kind of revenue that they initially think, because there's a large behavioral response to such taxes,” he explains.

Second-home owners typically possess substantial financial resources. This affluence enables them to relocate to areas with more favorable tax policies. They are also adept at navigating the levy’s specific triggers.

The combination makes the tax base very slippery, and that's already a documented problem in New York state. Between 2019 and 2023, an estimated $9.9 billion in annual adjusted gross income fled the state for places with more favorable tax policies, such as Florida.

Now, a similar response to the second-home tax already seems to be mounting. Billionaire Ken Griffin has threatened to leave the state and pull a massive investment in a new office development. As the city stares down its deficit, the move serves as a sobering preview of how the tax might backfire.