New York taxes capital gains as ordinary income at rates up to 10.9% — and New York City residents add a local tax on top — so selling appreciated real estate can cost a third or more of the gain when stacked with federal tax. A 1031 exchange into a Delaware Statutory Trust lets New York investors defer the combined bill and exchange active rentals for passive institutional real estate.
~34.7% (higher for NYC residents)Est. combined tax if you sell
10.9%Top state rate on gains
4.5–6.0% multifamilyIllustrative cap rates
How New York taxes a property sale
State treatment. Taxed as ordinary income (no preferential rate); NYC residents add city tax (~3.876%).
Nonresident withholding. Nonresidents generally prepay estimated tax at closing via Form IT-2663 unless a 1031 exemption applies.
Does New York conform to Section 1031?
Yes — a qualifying exchange defers state tax alongside federal.
New York conforms to IRC §1031, so a qualifying exchange defers New York tax as well as federal tax. Nonresidents selling NY property typically must remit estimated tax with Form IT-2663 at closing unless the gain is deferred in a 1031 exchange.
Passive replacement property with a DST
Many New York owners use a Delaware Statutory Trust as replacement property — institutional real estate, professionally managed, that qualifies for 1031 treatment and can absorb both the equity and the debt from the sale.
New York taxes capital gains as ordinary income, up to a 10.9% top rate, with no preferential long-term rate. New York City residents add a local income tax (about 3.876%). Combined with the federal 23.8%, a high-bracket New Yorker can face roughly 35% or more on a real estate gain.
Does New York recognize 1031 exchanges?
Yes. New York conforms to IRC §1031, so a properly structured exchange defers New York tax as well as federal tax.
What is Form IT-2663?
Form IT-2663 is New York's nonresident real property estimated income tax form. Nonresidents selling New York property generally must pay estimated tax at closing — unless the gain is deferred through a qualifying 1031 exchange.