New York Form IT-2663 and 1031 Exchanges
Plain-English answer
Yes, a New York 1031 exchange can still involve Form IT-2663 at closing. If you are a nonresident individual, estate, or trust selling certain New York real property, New York generally requires you to estimate personal income tax on the gain, if any, unless an exemption applies under Tax Law §663. For a 2026 conveyance, the current Form IT-2663 applies to sales or transfers after December 31, 2025, and before January 1, 2027 (2026 Form IT-2663).
A fully deferred 1031 exchange changes the form result. It does not turn the New York closing package into no paperwork. The 2026 Instructions for Form IT-2663 say that if you are not required to recognize gain or loss under the Internal Revenue Code, except for §121, you do not complete Part 2 or the worksheet. You continue to Part 3. The instructions give a specific 1031 example: for a like-kind real property exchange with no recognized gain or loss under IRC §1031, mark box 4B, give a brief exchange summary, state that the transaction is an IRC §1031 like-kind exchange, and complete Form IT-2663-V.
If the exchange produces taxable boot, the answer changes again. IRS Form 8824 instructions use Part III to figure current-year gain when cash or other non-like-kind property is involved. New York then looks to the gain that will be reported on the federal return for the transfer year when completing the IT-2663 worksheet.
| Seller situation | New York form result | Estimated payment result | Closing documentation point |
|---|---|---|---|
| Nonresident seller, full IRC §1031 deferral, no recognized gain or loss | Use IT-2663 Part 3, box 4B | No estimated tax payment on the deferred gain | Include a brief summary and say the transfer is an IRC §1031 like-kind exchange; complete IT-2663-V |
| Nonresident seller receives taxable boot | Use IT-2663 worksheet and Part 2 for the gain reported federally for the year | Estimated tax may be due | Pay the amount to the recording officer when the deed is presented |
| Nonresident seller has a sale or transfer loss | Complete the worksheet, enter zero gain, and use Part 3 box 4A | No estimated tax payment | Keep the worksheet with the form package |
| Entire property qualifies as the seller’s IRC §121 principal residence | The IT-2663 instructions list this as an exempt sale or transfer | No IT-2663 estimated tax payment | TP-584 Schedule D may be used to certify the exemption |
| Cooperative unit rather than real property | IT-2663 is not the right form | Use the co-op process instead | New York points nonresident co-op sellers to IT-2664 |
Who Form IT-2663 applies to
Form IT-2663 is for nonresident individuals, estates, and trusts that sell or transfer certain real property located in New York State. New York Tax Law §663 requires a nonresident to estimate personal income tax liability on gain, if any, from a New York real property sale, conveyance, or other disposition (New York Tax Law §663). The IT-2663 instructions say the requirement does not apply to individuals, estates, or trusts that are New York residents at the time of sale or transfer.
The form is tied to recording. The Instructions for Form TP-584 say a nonresident seller must present Form IT-2663 and pay the full amount of estimated personal income tax due, if any, to the recording officer when the deed is presented for recording. The IT-2663 instructions also say not to mail Form IT-2663 to the Tax Department.
A separate Form IT-2663 is required for each New York real property sale or transfer by a nonresident unless the seller is exempt from the estimated-tax requirement. If the transfer involves a cooperative unit, New York directs sellers to Form IT-2664 instead of IT-2663.
TP-584 matters because it sits in the same recording workflow. Schedule D of the current Form TP-584 provides the certification of exemption from estimated personal income tax. If none of the Schedule D exemption statements apply, the form says the seller must complete Form IT-2663 for real property or Form IT-2664 for a cooperative unit.
How a 1031 exchange changes the calculation
A 1031 exchange starts with the federal result. The IRS Form 8824 instructions say to use Parts I, II, and III to report each exchange of business or investment real property for like-kind real property. Form 8824 also figures deferred gain, current-year recognized gain when cash or non-like-kind property is involved, and basis in the replacement property.
New York then asks what portion of the gain will be reported on the seller’s federal income tax return for the transfer year. Form IT-2663 line 18 directs the seller to enter the gain, or portion of gain, from the worksheet that will be reported on the 2026 federal return. If the gain is reported as an installment sale, the form points to the amount reported on the 2026 federal return.
For a fully deferred 1031 exchange, the IT-2663 instructions give a cleaner path: do not complete Part 2 or the worksheet, move to Part 3, mark box 4B, summarize the transfer, and identify the transaction as an IRC §1031 like-kind exchange. The form still requires IT-2663-V, even if no estimated personal income tax payment is due.
For a delayed exchange, federal timing still matters. Replacement property must be identified within 45 days after the relinquished property is transferred. The replacement property must be received by the earlier of 180 days after that transfer or the due date of the seller’s tax return, including extensions, for the year of transfer. Rev. Proc. 2003-39 states the same earlier-of-180-days-or-return-due-date rule for delayed exchanges (Rev. Proc. 2003-39).
Boot and partial recognition examples
These examples are hypothetical and simplified. They ignore exchange expenses, depreciation recapture character, installment-sale treatment, and any separate federal or New York return computations.
Example 1: full deferral, no New York estimated payment
A nonresident individual transfers New York investment real property for $900,000. The adjusted basis is $550,000, so the realized gain is $350,000. The seller completes a like-kind real property exchange and receives no cash or non-like-kind property. Federal current-year recognized gain is $0.
For New York closing purposes, the seller uses the IT-2663 Part 3 route described in the instructions. The seller marks box 4B, writes a brief summary, states that the transaction is an IRC §1031 like-kind exchange, and completes IT-2663-V. The estimated-tax computation on recognized gain is $0 x 10.90% = $0.
Example 2: partial 1031 exchange with taxable boot
Use the same $900,000 transfer price and $550,000 adjusted basis, so realized gain is still $350,000. This time, the exchange leaves the seller with $40,000 of cash or other non-like-kind value that must be reported federally for the year. Federal current-year recognized gain is limited in this simplified example to the smaller of $40,000 of boot and $350,000 of realized gain, or $40,000.
For IT-2663, the relevant line is not the full $350,000 economic gain if $310,000 remains deferred. The worksheet points to the gain that will be reported on the 2026 federal return. Using the 2026 IT-2663 rate on line 19, the estimated New York payment is $40,000 x 10.90% = $4,360. That payment is an estimated tax payment, not the final return calculation. The IT-2663 instructions say nonresident sellers take the payment into account when filing their 2026 New York income tax return, and any refund can be claimed then.
Closing checklist
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Confirm the seller status on the date of transfer. IT-2663 targets nonresident individuals, estates, and trusts. New York residents use the resident certification path on TP-584 Schedule D rather than the nonresident estimated-tax payment regime.
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Confirm the asset type. Use IT-2663 for New York real property. Use IT-2664 for a nonresident sale or transfer of a cooperative unit.
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Decide whether the transfer is exempt from the IT-2663 filing/payment path. The IT-2663 instructions list exempt sales or transfers, including a property that qualifies in total as the seller’s IRC §121 principal residence. Mixed principal-residence and non-principal-residence property needs allocation support.
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If the exchange is fully deferred under IRC §1031, prepare IT-2663 Part 3 box 4B, include a brief summary of the exchange, identify the transaction as an IRC §1031 like-kind exchange, and complete IT-2663-V.
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If the exchange produces taxable boot, complete the worksheet and Part 2. Use the gain that will be reported on the federal return for the transfer year, then apply the IT-2663 line 19 rate for the year. For 2026, the form states 10.90%.
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Bring the correct package to recording. The rules require the form, certification, and any estimated tax payment when the deed is presented for recording. If a payment is due, the IT-2663 form and related instructions call for a separate check or money order payable to NYS Income Tax.
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Keep the federal exchange file with the New York closing file. Keep Form 8824, the exchange agreement, identification records, replacement-property closing records, the IT-2663 package, TP-584 Schedule D, and proof of any estimated payment.
Primary source notes
The New York sources answer the state form question. Form IT-2663 and its instructions control the 2026 nonresident real property estimated tax workflow, including the full-deferral 1031 example. TP-584 and its instructions explain the recording-package certification role. New York Tax Law §663 and the Part 163 regulation state the underlying estimated-tax rule.
The federal sources answer the 1031 recognition question. Form 8824 instructions explain how like-kind exchanges are reported and how current-year gain is figured when cash or non-like-kind property is involved. Rev. Proc. 2003-39 supports the delayed-exchange timing rule used in the checklist.
Frequently asked questions
Often, yes. A fully deferred 1031 exchange does not mean no New York closing documentation. The 2026 IT-2663 instructions tell a nonresident seller with no recognized gain or loss under IRC §1031 to use Part 3 box 4B, summarize the exchange, identify it as an IRC §1031 like-kind exchange, and complete IT-2663-V.
If no gain or loss is recognized under IRC §1031, the IT-2663 instructions say not to complete Part 2 or the worksheet. Use Part 3 box 4B and complete IT-2663-V. The deferred gain does not create an estimated New York payment at closing under that form route.
Boot can create current-year recognized gain on federal Form 8824. For IT-2663, New York points to the gain that will be reported on the federal return for the transfer year. For 2026, the form applies a 10.90% rate on the relevant gain amount to compute the estimated payment.
TP-584 Schedule D is the recording-package certification for exemption from estimated personal income tax. If an exemption applies, the seller signs the Schedule D certification. If none of the exemption statements apply, TP-584 says the seller must complete IT-2663 for real property or IT-2664 for a cooperative unit.
If IT-2663 shows estimated tax due, New York requires the completed form and full payment when the deed is presented for recording. The payment is credited when the nonresident seller files the New York income tax return for the year, and any refund is claimed on that return.
Educational disclaimer
This article is for general education only. It is not tax, legal, accounting, or closing advice. New York form treatment depends on seller status, property type, federal recognition, closing documents, and the tax year. Review the current forms with a qualified tax professional before signing closing certifications or calculating estimated tax.
Primary sources
- 2026 Form IT-2663
- 2026 Instructions for Form IT-2663
- Instructions for Form TP-584
- Current Form TP-584
- New York Tax Law §663
- New York Part 163 regulation adoption text
- IRS Form 8824 instructions
- Rev. Proc. 2003-39