New York capital gains tax on real estate is not a separate tax: the gain lands on your state return as ordinary income at rates that reach 10.9%, and New York City residents owe up to 3.876% more to the city. Nonresident sellers prepay that tax at the closing table on Form IT-2663, and the deed, mansion and city transfer taxes come due at the same closing. A 1031 exchange in New York defers the federal, state and city income tax on the gain, and it lets a nonresident skip the IT-2663 payment, but it does nothing about the transfer taxes.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Yes. Taxed as ordinary income; 2026 rates run from 3.9% to 10.9% |
|---|---|
| Long-term capital gains treatment | No preferential rate. Top rate of 10.9% applies above $25 million of taxable income; 9.65% starts above $1,077,550 (single) or $2,155,350 (joint) |
| Nonresident withholding at closing | Yes. Estimated tax at 10.9% of the gain for 2026, paid at closing by nonresident individuals, estates and trusts |
| Withholding form | Form IT-2663; mark box 4B for a Section 1031 exchange |
| Transfer or conveyance tax (a 1031 does not defer it) | State transfer tax 0.4% (0.65% on high-value NYC sales), 1% mansion tax paid by buyers of $1 million+ homes, plus NYC RPTT of 1% to 2.625% |
| Clawback on out-of-state replacement property | No tracking form like California's FTB 3840 |
| Conforms to Section 1031 | Yes, for state and city income tax |
| Local income tax | New York City residents: 3.078% to 3.876%. Yonkers residents pay a surcharge |
Table of contents
- How much is capital gains tax on real estate in New York?
- New York tax on a $300,000 gain: worked example
- Form IT-2663: New York nonresident withholding and the 1031 exemption
- NYC transfer tax, the state transfer tax and the mansion tax
- When your replacement property triggers the mansion tax
- New York conformity and what happens to the deferred gain
- Moving into or out of New York
- Where New York exchanges happen
- The federal rules that apply to every New York exchange
- New York 1031 mistakes we see
- Start your New York 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in New York?
New York adds your gain to wages, rents and everything else and taxes the total on one bracket schedule. There is no reduced rate for long-term gains and no exclusion for investment property. The 2026 schedules reflect the middle-bracket rate cuts in Chapter 59 of the Laws of 2025, but the top of the schedule did not move:
- 9.65% on taxable income above $1,077,550 for single filers and $2,155,350 for joint filers.
- 10.3% above $5 million and 10.9% above $25 million.
- High earners also lose the benefit of the lower brackets, so a large sale can push the effective state rate close to the marginal rate.
New York City residents pay a separate city income tax on the same gain, currently 3.078% to 3.876% with the top rate reached at modest income levels. Yonkers residents pay a surcharge figured on their state tax. Nonresidents of the city who sell a Manhattan building owe no city income tax, though the city transfer tax still applies to the sale.
Depreciation gets no special state treatment. The federal return splits the gain into unrecaptured Section 1250 gain at up to 25% and capital gain at up to 20%, plus the 3.8% net investment income tax. New York simply taxes the whole amount at your ordinary rate. For a New York City resident in the top bracket, state and city combined reach 14.776% before federal tax. That stack is why selling outright vs. exchanging is rarely close for long-held Manhattan and Brooklyn multifamily.
New York tax on a $300,000 gain: worked example
Assumptions: a $300,000 long-term gain on an investment property, $100,000 of it unrecaptured Section 1250 depreciation, a seller already in the top federal and top New York brackets, filing jointly. The city line applies only if you live in the five boroughs.
| Tax | Math | Amount |
|---|---|---|
| Federal unrecaptured §1250 gain | 25% x $100,000 | $25,000 |
| Federal long-term capital gain | 20% x $200,000 | $40,000 |
| Net investment income tax | 3.8% x $300,000 | $11,400 |
| Federal subtotal | $76,400 | |
| New York State income tax | 10.9% x $300,000 | $32,700 |
| Total without city tax | $109,100 | |
| New York City income tax (city residents only) | 3.876% x $300,000 | $11,628 |
| Total for a NYC resident | $120,728 |
A full exchange, reinvesting all net proceeds into property of equal or greater value and debt, defers every dollar in that table: $109,100 for most New York residents and $120,728 for a city resident. A seller below the $25 million bracket pays a somewhat lower state rate, so treat the 10.9% line as the ceiling. Run your own depreciation figures through the depreciation recapture calculator.
Form IT-2663: New York nonresident withholding and the 1031 exemption
If you no longer live in New York and sell New York real estate, the state wants its tax before the deed records. Form IT-2663 requires nonresident individuals, estates and trusts to compute the gain and pay estimated income tax at the top rate, 10.9% for 2026 conveyances, with the form delivered at closing alongside the transfer tax return. It is a prepayment, reconciled on your IT-203 nonresident return, but it comes straight out of the proceeds.
In an exchange, the gain is not recognized, so no payment is due. The form handles this in Part 3: mark box 4B, write a short summary of the exchange, and state that it is a like-kind exchange under IRC Section 1031. You still file the form; you just owe nothing on it. We provide the exchange agreement and assignment documents your closing attorney needs to support that certification.
Two practical notes. If you plan to take some cash out, the exempt certification does not fit cleanly, so talk to your CPA about estimating tax on the recognized portion. And IT-2663 covers individuals, estates and trusts; if your property sits in a partnership or multi-member LLC, the entity follows different rules, which your attorney should confirm before the contract is signed. Foreign sellers also face federal FIRPTA withholding; see our FIRPTA guide.
NYC transfer tax, the state transfer tax and the mansion tax
A 1031 exchange defers income tax on gain. New York's transfer taxes are charged on the price, and nothing about an exchange reduces them. On a New York City sale you can face four separate charges:
- State real estate transfer tax: $2 per $500 of consideration (0.4%), paid by the seller.
- Additional state tax in NYC: another $1.25 per $500 (0.25%) on residential sales of $3 million or more and non-residential sales of $2 million or more, also paid by the seller, for 0.65% in total.
- NYC Real Property Transfer Tax (RPTT): for 1-3 family homes, condos and co-ops, 1% up to $500,000 and 1.425% above that; for other property, including apartment buildings and commercial, 1.425% up to $500,000 and 2.625% above. The seller normally pays it by custom.
- Mansion tax: 1% of the full price on residential purchases of $1 million or more anywhere in the state, paid by the buyer. In New York City, residential purchases of $2 million or more carry a supplemental tax of 0.25% to 2.9%, so the combined rate climbs from 1.25% to 3.9% at $25 million.
Example: a $5 million Manhattan mixed-use building sold as part of an exchange owes $131,250 of RPTT (2.625%) and $32,500 of state transfer tax (0.65%) before a dollar reaches your intermediary. Those are selling expenses, so they can be paid at closing without creating boot, but they reduce the equity you carry into the replacement.
When your replacement property triggers the mansion tax
The mansion tax is a buyer's tax, which means it matters most on the purchase side of your exchange. If you sell a small commercial building and buy a $1.5 million condo or a two-family house to rent out, you pay 1% at the replacement closing: $15,000. Buy a $3 million residential rental in the city and the combined mansion tax is 1.5%, or $45,000. It is a closing cost of the replacement property and can be funded from the exchange account, but it adds basis rather than reducing taxable gain, and it shrinks the cash left for the down payment.
Commercial and multifamily buildings with more than three units are not residential for mansion tax purposes, which is one reason New York exchangers trading up often land in five-plus unit buildings or commercial property rather than luxury condos. If the replacement is a condo or small residential building near a price threshold, get the exact number from your closing attorney before you identify it.
New York conformity and what happens to the deferred gain
New York starts from federal adjusted gross income, so gain deferred on your federal Form 8824 is also deferred on your IT-201 or IT-203, and on the city return for city residents. There is no separate state election and no annual follow-up form of the California FTB 3840 or Oregon OR-24 kind.
Deferred still means owed. If you exchange New York property into Florida or Texas property and later sell that property in a taxable sale while you are a New York resident, New York taxes the full gain. If you have moved away by then, whether New York can reach the portion that built up in New York is not settled by any tracking form, and it depends on how the later sale is structured. Treat it as a planning question for your CPA rather than assuming the gain is gone. The cleanest permanent outcome is the one estate planners use: hold the last replacement property until death, when heirs receive a stepped-up basis. Our swap-till-you-drop guide explains how that works.
Moving into or out of New York
New York taxes nonresidents on gain from New York real property. Moving to Florida before you sell a Queens fourplex does not remove the state tax; it replaces it with an IT-2663 payment at closing. What moving does change is the city tax, which only residents pay, and the tax on future property you buy elsewhere.
The most common outbound routes run to Florida and the Carolinas, where investors trade rent-regulated or high-tax buildings for newer property with lower operating costs. Plenty of capital also moves a shorter distance, into New Jersey and Connecticut, where you should budget for those states' own transfer taxes on a later sale. Inbound, the typical New York buyer is a Long Island or Westchester investor consolidating out-of-state rentals into one New York building. If you have already found that building and have not sold, a reverse exchange can close the purchase first.
Where New York exchanges happen
New York City carries most of the state's exchange volume. Our 1031 exchange in Manhattan guide covers mixed-use, retail condos and office, while the 1031 exchange in New York City page covers the outer-borough multifamily and small-building market in Brooklyn, Queens and the Bronx. Rent-stabilized buildings trade at prices that reflect limited rent growth, and many owners exchange out of them into unregulated or out-of-state assets.
Outside the city, Long Island and Westchester supply retail, medical office and small multifamily, and the Hudson Valley has absorbed a wave of single-family rentals. Upstate, Buffalo, Rochester, Syracuse and Albany offer higher cap rates at lower prices, offset by some of the heaviest property tax bills in the country. Warehouse and flex space along the I-87 and I-84 corridors is a steady target for industrial exchanges.
The federal rules that apply to every New York exchange
You have 45 days from the sale to identify replacement property in writing and 180 days to close on it. A qualified intermediary must hold the proceeds from the moment the sale closes. To defer all of the tax, buy property of equal or greater value and replace your debt with new debt or cash. Our 1031 exchange guides explain each rule, the 45-day identification validator checks your list, and the 1031 exchange calculator estimates what you defer.
New York 1031 mistakes we see
- Leaving box 4B blank on IT-2663, so the closing attorney collects 10.9% of the gain and your exchange starts short.
- Setting the replacement target from the contract price instead of the net after RPTT, state transfer tax and broker fees.
- Identifying a $1 million-plus condo or two-family house without budgeting the mansion tax at the replacement closing.
- Moving out of New York City before the sale and assuming the state tax goes away with the city tax.
- Selling a membership interest in the LLC that owns the building. That is not an exchange of real property, and transfers of controlling interests can still trigger state and city transfer taxes.
- Waiting until after contract to tell the closing attorney it is an exchange, so the assignment and cooperation language is missing.
Start your New York 1031 exchange
Engage us before your relinquished property closes. We prepare the exchange agreement and assignment for your closing attorney, support the IT-2663 certification for nonresident sellers, hold the proceeds in a segregated account, and track both deadlines. Start your exchange online, book an intro call to review a specific deal, or call (631) 438-1031.
Frequently asked questions
How can I avoid capital gains tax on real estate in New York?
Complete a 1031 exchange: sell through a qualified intermediary and reinvest all net proceeds in like-kind property within 180 days. That defers federal, New York State and New York City income tax on the gain. Holding exchanged property until death gives heirs a stepped-up basis and can eliminate the deferred gain.
What is the New York capital gains tax rate on real estate in 2026?
New York taxes real estate gains as ordinary income. The top rate is 10.9% on taxable income above $25 million, and rates of 9.65% to 10.3% apply to high earners below that. New York City residents add up to 3.876% in city income tax.
Do I have to file IT-2663 if I am doing a 1031 exchange?
Yes, a nonresident individual, estate or trust still files IT-2663 at closing, but marks box 4B, summarizes the exchange and notes that it qualifies under IRC Section 1031. No estimated tax is paid on a fully deferred exchange.
Does a 1031 exchange defer the NYC transfer tax or the mansion tax?
No. The NYC RPTT, the state transfer tax and the mansion tax are based on the sale price, not the gain, and are due at closing whether or not you exchange. They can be paid from the closing without creating boot.
Who pays the mansion tax in New York?
The buyer pays the 1% mansion tax on residential purchases of $1 million or more. In New York City, purchases of $2 million or more carry a higher combined rate of 1.25% to 3.9%. In an exchange, it matters when your replacement property is residential.
Can I do a 1031 exchange from New York to Florida?
Yes. Real property anywhere in the United States is like-kind to New York real property. The exchange defers New York tax, but if you are still a New York resident when you later sell the Florida property in a taxable sale, New York taxes the gain.
Sources
- NYS Form IT-2663 (2026)
- NYS Form IT-2663 instructions (2026)
- NYS Real estate transfer tax
- NYS Publication NYS-50-T-NYS (2026 withholding tables)
- NYC Department of Finance: Real Property Transfer Tax
- NYC Independent Budget Office: personal income tax tables (2026)
Related: New Jersey, Connecticut, Pennsylvania, Florida and all 50 states.
This page is general information, not tax or legal advice. 1031 Specialists is a qualified intermediary. New York rates and thresholds change, so confirm your numbers with a CPA or attorney before you sell.
