1031 Exchange in New York — State Tax Rules (2026)

State tax on the gain

New York taxes capital gains as ordinary income, with state brackets reaching 10.9% at the top — and New York City residents add roughly another 3.9% of city tax on top. On a big gain in the city, the combined state-and-local layer can rival the federal capital gains bill itself, which makes deferral especially valuable here.

Does New York recognize 1031 deferral?

Yes. New York conforms to Section 1031 for real property — a valid federal exchange defers New York tax as well. The state's attention is on nonresidents and on gains that try to leave.

Withholding at closing

New York requires nonresident sellers to prepay estimated tax on the gain at closing, filed on Form IT-2663. The form includes a specific exemption box for property sold as part of a 1031 exchange — check it (with your closing attorney's help) and no prepayment is due. New York residents selling New York property aren't subject to the closing prepayment; the exchange simply defers the tax on their return.

Exchanging into another state

New York taxes nonresidents on New York–source income, and gain that accrued on New York real estate keeps that character even after being deferred into out-of-state property. Unlike California, New York has no annual tracking form — but on an eventual taxable sale, the originally deferred New York gain is still reportable to New York by a nonresident. In practice enforcement is less systematic than California's Form 3840 machine, but the legal claim exists; get advice before assuming a Florida exchange washes the New York gain away.

Run your numbers with the New York rate →The calculator takes your state tax rate — see the full deferral including the state layer

State tax rules change and have exceptions this page can't cover. Confirm current rates and filing requirements with a tax professional licensed in New York.

Common Questions

Does New York allow 1031 exchanges?

Yes — New York conforms to the federal rules for real property. State and (for city residents) local tax defer together with the federal tax in a valid exchange.

What is Form IT-2663?

The estimated tax prepayment form nonresident sellers of New York property file at closing. It contains an exemption for 1031 exchanges — properly claimed, no prepayment is withheld from your proceeds.

If I exchange New York property into Florida property, is the New York tax gone?

Deferred, not gone. The gain retains its New York source, and a nonresident's eventual taxable sale can still trigger New York reporting on the originally deferred portion. Holding until death, with the step-up, remains the clean exit under current law.