Selling property in New York City can trigger tax at three levels at once: federal, New York State, and, if you're a city resident, New York City. Whether any of it lands on you, and how much, depends on a handful of specific facts: how long you owned and lived in the home, whether it was your primary residence or a rental, whether you inherited it, and whether you're a New York resident or a nonresident seller at the time of closing.
This guide walks through the federal home-sale exclusion under Internal Revenue Code Section 1211, the federal long-term capital gains brackets and the 3.8% net investment income tax23, how New York State and New York City tax the same gain5, the estimated-tax rules that apply to nonresident sellers6, FIRPTA withholding for foreign sellers4, basis rules for co-op and condo owners18, depreciation recapture on rental property2, stepped-up basis for inherited homes8, and 1031 exchanges for investment property9. A worked example at the end ties the pieces together using the rates cited throughout.
Tax law changes, and the dollar thresholds below are adjusted for inflation most years, so treat every figure here as a snapshot of the rule as currently published and confirm current-year numbers with a CPA or the source agency before you rely on them for your own return.
If you haven't yet worked out what it will cost you to sell, start with what it costs to sell a home in NYC; this guide picks up after that, at the tax line.
The Federal Home-Sale Exclusion (Section 121)
If the home you're selling was your main home, the biggest tax break available is the Section 121 exclusion. If you have a capital gain from the sale, you may qualify to exclude up to $250,000 of that gain from federal income tax, or up to $500,000 if you file a joint return with your spouse.1
To qualify, you have to pass both the ownership test and the use test. You meet the ownership test if you owned the home for at least 24 months (2 years) out of the 5 years before the sale, and you meet the use test if you lived in it as your main home for at least 24 months of that same 5-year window; the 24 months of use don't have to be one continuous stretch.1
If you don't meet the full 2-year tests, for example because you sold due to a job change, health issue, or another unforeseen circumstance, you may still qualify for a partial exclusion. The IRS formula takes the shortest of three periods (how long you used the home during the 5-year window, how long you owned it, or how long it's been since you last used the exclusion on a different home), divides that period by 730 days, and multiplies the result by the $250,000 exclusion limit for each spouse who qualifies.1
Federal Long-Term Capital Gains Rates
Any gain that isn't excluded under Section 121, plus the entire gain on a second home, rental, or inherited property that you've owned for more than a year, is taxed at the federal long-term capital gains rates of 0%, 15%, or 20%, based on your total taxable income for the year.2
For the 2025 tax year, single filers pay 0% on long-term gains if their taxable income is $48,350 or less, 15% on income between $48,351 and $533,400, and 20% above $533,400.2 Married couples filing jointly pay 0% up to $96,700 of taxable income, 15% up to $600,050, and 20% above that.2
| Filing status | 0% rate2 | 15% rate2 | 20% rate2 |
|---|---|---|---|
| Single | Up to $48,3502 | $48,351 to $533,4002 | Above $533,4002 |
| Married filing jointly | Up to $96,7002 | $96,701 to $600,0502 | Above $600,0502 |
Because these brackets are based on taxable income (your gain stacked on top of your other income, after deductions), a large home-sale gain can push some of your ordinary income and gain into a higher bracket even if your regular salary alone would not have.2 These thresholds are adjusted for inflation most years, so confirm the current year's numbers before filing.
The 3.8% Net Investment Income Tax
On top of the capital gains rate, higher earners may owe the net investment income tax (NIIT), an additional 3.8% federal tax.3 It applies to the lesser of your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds $200,000 for single filers and heads of household, $250,000 for married filing jointly, or $125,000 for married filing separately.3
Net investment income includes capital gains, along with interest, dividends, and rental income.3 Importantly, any gain you exclude from income under the Section 121 home-sale exclusion is also excluded from net investment income, so the 3.8% tax only reaches gain above your $250,000 or $500,000 exclusion, or gain on a property that never qualified for the exclusion in the first place, such as a rental or investment property.3
What you owe depends less on the sale price than on how long you owned the home, whether you lived in it, and where you live now.
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New York State and New York City: Capital Gains Taxed as Ordinary Income
New York does not have a separate capital gains rate. The state taxes a capital gain the same way it taxes wages: as ordinary income, added to the rest of your taxable income for the year and taxed at your marginal New York State bracket.5 For the 2025 tax year, New York State has nine brackets running from 4% at the bottom to 10.9% at the top.5
| NY taxable income (single) | Rate |
|---|---|
| $0 to $8,500 | 4%5 |
| $8,500 to $11,700 | 4.5%5 |
| $11,700 to $13,900 | 5.25%5 |
| $13,900 to $80,650 | 5.5%5 |
| $80,650 to $215,400 | 6%5 |
| $215,400 to $1,077,550 | 6.85%5 |
| $1,077,550 to $5,000,000 | 9.65%5 |
| $5,000,000 to $25,000,000 | 10.3%5 |
| Above $25,000,000 | 10.9%5 |
Married couples filing jointly reach each of those same rates at roughly double the single-filer thresholds, from $17,150 up to $2,155,350 for the 6.85% bracket, up to the same 10.9% top rate above $25,000,000 of taxable income.5
If you're a New York City resident, city tax stacks on top of the state tax, also on ordinary-income terms, in four brackets ranging from 3.078% to 3.876% of NYC taxable income for the 2025 tax year: 3.078% up to $21,600 of joint taxable income, 3.762% on the next band up to $45,000, 3.819% up to $90,000, and 3.876% on income above $90,000.5
Because state and city gains are taxed at your marginal ordinary-income rate rather than a flat capital gains rate, a large one-time gain from a home sale, especially on a co-op, condo, or investment property that doesn't qualify for the federal exclusion, can push the entire sale year's income into New York's higher brackets.5 Queens sellers pay the same state and city rates as sellers in any other borough; there's no borough-specific rate difference under either schedule.5
Nonresident Sellers (Form IT-2663) and Foreign Sellers (FIRPTA)
If you're selling New York real property but you are not a New York resident at the time of the sale, the state generally requires an estimated income tax payment on the gain to be made at closing, using Form IT-2663, the Nonresident Real Property Estimated Income Tax Payment Form.6 The form is filed with the deed when it's recorded, and the payment is typically handled through the closing attorney rather than mailed separately to the Department of Taxation and Finance.67
The estimated payment is calculated by applying the top New York State personal income tax rate for the year, currently 10.9%, to the recognized gain on the sale, then remitting that amount at closing; the payment is reconciled against your actual tax liability when you file your New York nonresident return for the year.57
You may be exempt from the IT-2663 payment, though you generally still have to file the form to document the exemption, if the sale qualifies for the federal Section 121 principal-residence exclusion, or if the transfer is a nonrecognition transaction such as a qualifying like-kind exchange under Section 1031.67 Co-op share sales use a separate form, IT-2664, rather than IT-2663.6
Separately from New York's nonresident rules, federal law requires a withholding on sale proceeds when the seller is a foreign person, not a U.S. resident or citizen for tax purposes, under the Foreign Investment in Real Property Tax Act (FIRPTA). The buyer, as the withholding agent, generally must withhold 15% of the total amount realized on the sale, not just the gain, and remit it to the IRS using Form 8288, with the seller receiving a Form 8288-A statement.4
There's an exemption for smaller residential sales: if the buyer is acquiring the property to use as a residence and the amount realized is $300,000 or less, no FIRPTA withholding is required at all.4 Because the standard 15% withholding is based on the full sale price rather than the actual gain, it's often far more than the seller's real tax liability; a foreign seller can apply in advance for an IRS withholding certificate to reduce the amount withheld to closer to the actual expected tax, or file a U.S. nonresident return after closing to claim a refund of the excess.4
Cost Basis for Co-op Shares and Condos
Your taxable gain is the amount you realize on the sale minus your adjusted basis, not simply the difference between your original purchase price and your sale price.1 Basis starts with what you paid for the property, or, for co-op shares, what you paid for your shares in the cooperative housing corporation, and it's increased by the cost of capital improvements you made while you owned it and certain closing costs from your purchase.18 Ordinary repairs and maintenance don't add to basis; capital improvements, such as a new kitchen, renovated bathroom, or a new roof, generally do.1
For a condo, this is usually straightforward because you own the real property directly. A co-op is more complicated because you own shares in a corporation rather than real property, and NYC co-op sales typically carry building-specific charges, such as a flip tax payable to the co-op corporation on transfer, that are set by each building's proprietary lease or house rules rather than by state or federal tax law; check your building's governing documents for whether one applies and how it affects your net proceeds. For a closer comparison of how co-op and condo sales differ end to end, see selling a co-op vs. a condo in NYC.
Either way, closing costs tied to the sale itself, such as broker commissions and transfer taxes, reduce your amount realized rather than adding to basis, which lowers your taxable gain either way.1
Depreciation Recapture on Rental Property
If you've owned the property as a rental, part of your gain reflects the depreciation deductions you claimed (or could have claimed) over the years, and that portion doesn't get the benefit of the 0/15/20% brackets. Instead, the portion of gain attributable to depreciation on real property, known as unrecaptured Section 1250 gain, is taxed at a maximum federal rate of 25%.2
This applies whether the property was a dedicated rental or a home that had a period of rental or business use, such as an investment property you're now selling, or a former primary residence you rented out for a stretch before the sale.12 The 25% figure is a ceiling, not a flat add-on: if your ordinary tax bracket for the year is below 25%, the unrecaptured gain is taxed at your ordinary rate instead, and any remaining gain above the depreciation amount is still taxed at the regular long-term capital gains rates.2
Two Special Cases: Inherited Property and 1031 Exchanges
If you inherited the home rather than buying it, your starting basis is not what the original owner paid. Under federal law, the basis of property inherited from a decedent is generally its fair market value on the date of the decedent's death, or on the alternate valuation date if the estate's personal representative elects to use one.8
In practice, this "stepped-up basis" rule usually shrinks or eliminates the taxable gain on a quick sale of an inherited home, because your basis resets to something close to current market value rather than to what a parent or relative paid decades earlier. If you hold the inherited property for a while before selling and it appreciates further, only the appreciation after the date of death is taxable gain.8 An inherited home does not carry the Section 121 exclusion automatically; you'd need to meet the ownership and use tests yourself, based on your own period of ownership and residence, to claim that exclusion on top of the stepped-up basis.1
A different tool applies to investment property: a Section 1031 like-kind exchange lets an investor defer capital gains tax by rolling the proceeds from selling one investment or business-use real property into another, rather than recognizing the gain in the year of sale. Since a 2017 tax law change, Section 1031 applies only to exchanges of real property, and only when the property was held for business use or as an investment; it explicitly does not apply to property held primarily for sale, such as flip-and-resell inventory, or to a personal residence.9
That makes 1031 exchanges irrelevant to most owner-occupied home sales in NYC, since Section 121 already covers the primary-residence case, but it's a significant planning tool for owners of rental apartments, multi-family buildings, or other investment real estate who want to trade into a different property without triggering an immediate tax bill.9 Both the property given up and the property received must be real property located in the United States; foreign real estate doesn't qualify as like-kind to U.S. real estate under this rule.9
A Worked Example, Using the Rates Above
Consider a single New York City resident who bought a Queens condo, lived in it as their only home for more than two years, and is weighing a sale after getting an estimate of the home's current value. They sell for a net amount realized of $950,000 after commissions and transfer taxes, with an adjusted basis (purchase price plus capital improvements) of $500,000. The gain before any exclusion is $450,000, computed as amount realized minus adjusted basis.1
Because the seller passes the ownership and use tests, they can exclude $250,000 of that gain from federal income under Section 121, leaving $200,000 of taxable gain.1
Assume the seller's other taxable income for the year, combined with the $200,000 taxable gain, lands their total taxable income well above the $48,350 single-filer 0% threshold but below the $533,400 top of the 15% bracket, so the federal long-term capital gains rate on that $200,000 is 15%, for federal capital gains tax of $30,000.2
If the seller's modified adjusted gross income for the year exceeds the $200,000 single-filer NIIT threshold, the 3.8% net investment income tax applies to the lesser of their net investment income or the amount over that threshold; on $200,000 of taxable gain counted as net investment income, that adds up to $7,600 at the full 3.8% rate.3
New York State taxes the same $200,000 gain as ordinary income stacked on the seller's other income; at the 6.85% bracket that applies to New York taxable income between $215,400 and $1,077,550, the state tax on that portion of the gain is roughly $13,700.5 As a New York City resident, the seller also owes city tax at the top city rate of 3.876% on income above $90,000 of NYC taxable income, adding roughly $7,750 more.5
Adding it up: $30,000 federal capital gains tax, $7,600 NIIT, about $13,700 New York State tax, and about $7,750 New York City tax, for combined tax of roughly $59,050 on a $450,000 gain, an effective rate of about 13% of the total pre-exclusion gain, before accounting for the $250,000 that was excluded entirely.1235 A rental property or an inherited home sold without qualifying for Section 121 would owe tax on the full $450,000 gain instead, plus any depreciation recapture, which is why the exclusion is the single largest variable in these numbers.12
Frequently Asked Questions
Do I owe capital gains tax if I sell my only home in NYC and buy another one?
Buying a replacement home doesn't affect the tax on your sale. What matters is whether you meet the Section 121 ownership and use tests: at least 24 months of ownership and 24 months of use as your main home within the 5 years before the sale, which lets you exclude up to $250,000 of gain ($500,000 if married filing jointly) regardless of what you do with the proceeds afterward.1
Does New York State have a lower capital gains rate than ordinary income, like the federal government does?
No. New York State and New York City both tax capital gains as ordinary income at your regular marginal bracket, up to a top state rate of 10.9% plus up to 3.876% in city tax for NYC residents; there's no reduced state or city rate for gains held long-term the way federal law provides.5
I live outside New York but I'm selling a NYC property. What do I owe at closing?
As a nonresident seller, you generally have to make an estimated New York State tax payment on the gain at closing using Form IT-2663, calculated at the state's top tax rate, currently 10.9%, unless the sale qualifies for an exemption such as the Section 121 exclusion or a 1031 exchange.65
What's FIRPTA, and does it apply to me?
FIRPTA withholding applies when the seller is a foreign person, not a U.S. citizen or resident for tax purposes. The buyer must generally withhold 15% of the total sale price and send it to the IRS, unless the sale qualifies for an exception, such as a residential purchase of $300,000 or less.4
How does depreciation recapture affect the sale of a rental I used to live in?
If you claimed depreciation for any period the home was rented out or used for business, the portion of your gain equal to that depreciation is taxed separately as unrecaptured Section 1250 gain, at a maximum federal rate of 25%, even if the rest of the sale otherwise qualifies for the Section 121 exclusion.12
If I inherited my parents' NYC home, do I owe tax on the gain since they bought it decades ago?
Generally not on the gain that happened before you inherited it. Your basis in inherited property is stepped up to its fair market value on the date of death (or the alternate valuation date, if elected), so you're only taxed on appreciation that occurs after you inherit the property, not the entire gain since the original purchase.8
Can I use a 1031 exchange to avoid tax on selling my co-op apartment?
Only if the co-op was held as a rental or investment property, not as your personal residence, and only if you exchange it for other real property held for business or investment use; Section 1031 explicitly does not apply to property held primarily as your home or held primarily for resale.9
Does the net investment income tax apply on top of everything else?
It can. The 3.8% NIIT applies to the lesser of your net investment income or the amount your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly), but any gain you exclude under Section 121 is excluded from net investment income too, so it typically only bites on the taxable portion of a large gain or on rental and investment property sales.3
