New York follows federal 1031 exchange rules with state capital gains tax rates ranging from 4% to 10.9%, and New York City residents face additional local income taxes ranging from 3.078% to 3.876%, creating significant tax deferral opportunities through properly structured exchanges.
This information is for educational purposes only and is not legal or tax advice. Consult with qualified professionals regarding your specific situation.
Important regulations and tax implications for your exchange
4% - 10.9% (taxed as ordinary income)
3.078% - 3.876% for NYC residents
7.7% of gain unless exemption applies
Yes
State: $2 per $500 (0.4%); NYC: 1% - 2.625%
1% - 3.9% on properties over $1 million
• Federal Form 8824 • New York IT-201 (Resident Income Tax Return) or IT-203 (Nonresident and Part-Year Resident Income Tax Return) • Form IT-2663 (for residential property) or Form IT-2664 (for non-residential property) for non-residents • Complete closing statements for both properties
None
Informational step-by-step guide for your 1031 exchange
Work with a qualified intermediary to handle the exchange funds and documentation. Choose a QI with specific experience in New York real estate transactions and knowledge of the state's tax laws.
Complete the sale of your relinquished property, ensuring that the proceeds go directly to your qualified intermediary rather than to you. In New York, be prepared for transfer taxes and, if applicable, the mansion tax on the sale.
Within 45 days of closing on your relinquished property, formally identify potential replacement properties according to IRS rules. Document your identification in writing and provide it to your qualified intermediary.
Conduct thorough due diligence on your identified replacement properties. In New York, pay special attention to rent regulation status for multifamily properties, transfer tax implications, and if applicable, mansion tax requirements.
Complete the purchase of your replacement property within 180 days of selling your relinquished property. Ensure all documentation is properly filed and processed.
Report your 1031 exchange on both your federal tax return (Form 8824) and New York state tax return (IT-201 or IT-203). Even though the exchange defers taxes, it must still be reported to both tax authorities.
When planning your 1031 exchange in New York, be aware that transfer taxes and the mansion tax cannot be deferred. New York State imposes a transfer tax of $2 per $500 of consideration (0.4%), and New York City imposes an additional transfer tax ranging from 1% to 2.625% depending on property type and value. Additionally, residential properties selling for $1 million or more are subject to a 'mansion tax' with rates ranging from 1% to 3.9% depending on the purchase price. These taxes must be paid at the time of transaction and cannot be deferred through a 1031 exchange.
Non-resident sellers of New York property must comply with Form IT-2663 (for residential property) or Form IT-2664 (for non-residential property) withholding requirements. Non-residents must withhold 7.7% of the gain on the sale unless an exemption applies. For a 1031 exchange, you can claim an exemption by completing Form TP-584, but you must still file the appropriate withholding form with the exemption claimed. Failure to comply with these requirements can result in the exchange being disqualified from tax deferral.
Consider the significant differences between New York City, Long Island, the Hudson Valley, and Upstate regions. These areas have distinct market dynamics, price points, and investment characteristics. New York City offers high appreciation potential but with high entry costs and lower cap rates, while Upstate cities like Buffalo, Rochester, and Syracuse offer affordability and higher cap rates. Long Island and the Hudson Valley offer a middle ground with strong appreciation potential and moderate cap rates.
Recent changes and upcoming regulations affecting 1031 exchanges
New York maintains its graduated income tax rate structure, with rates ranging from 4% to 10.9% depending on income level and filing status. These rates apply to capital gains not deferred through a 1031 exchange, as New York treats capital gains as ordinary income.
New York City continues to impose additional local income taxes ranging from 3.078% to 3.876% on city residents, including on capital gains. This creates an additional tax burden for NYC-based investors, making 1031 exchanges particularly valuable for deferring both state and city taxes.
New York requires non-resident sellers to comply with Form IT-2663 (for residential property) or Form IT-2664 (for non-residential property) withholding requirements. Non-residents must withhold 7.7% of the gain on the sale of New York property unless an exemption applies, such as a properly structured 1031 exchange.
Plan and track your critical exchange deadlines
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
Investment property insights for New York
Multifamily properties in New York offer strong investment potential, particularly in Brooklyn, Queens, and upstate cities, driven by population growth, limited new supply, and strong rental demand.
Office properties in New York show mixed performance, with stronger results in select NYC submarkets and emerging technology hubs in upstate cities.
Industrial properties in New York offer strong investment potential, particularly along major transportation corridors and in logistics hubs serving the Northeast market.
Retail properties in New York show mixed performance, with stronger results for neighborhood service centers and high-street retail in prime locations.
Real 1031 exchange examples from New York
Current market conditions and future forecasts
New York City's real estate market shows mixed performance, with Manhattan experiencing a slight correction (median prices down 4% year-over-year in Q4 2024) while Brooklyn and Queens continue to show growth (up 6.3% and 7.8% respectively). The luxury segment has been most affected by higher interest rates, while the middle market remains relatively stable. The rental market has fully recovered from pandemic-era declines, with median rents reaching new highs in most neighborhoods. New development activity remains concentrated in Brooklyn and Queens due to more favorable zoning and lower land costs.
Long Island continues to show strong performance, with Nassau County median home prices up 9.2% year-over-year and Suffolk County up 8.7%. The market benefits from continued migration from New York City, limited new construction, and strong school districts. The North Shore and South Shore show different price points and buyer profiles, with the North Shore commanding premium prices. The rental market remains tight, with vacancy rates below 3% and rents up 6.5% year-over-year.
The Hudson Valley market shows exceptional strength, with median home prices up 12.3% year-over-year. The region continues to benefit from pandemic-era migration patterns, with remote work enabling more NYC residents to relocate to areas with more space and natural amenities. Westchester County commands the highest prices, while counties further north offer more affordability but with longer commutes to NYC. The short-term rental market remains strong, particularly in areas with tourism appeal.
Upstate cities show remarkable growth, with Rochester, Syracuse, and Buffalo among the hottest markets in the nation. Rochester leads with a 22.7% year-over-year price increase, followed by Syracuse at 18.5% and Buffalo at 16.9%. These markets benefit from affordability, economic revitalization efforts, and strong rental demand from university populations and young professionals. The industrial market is particularly strong in Buffalo and Rochester, driven by manufacturing resurgence and logistics demand.
Long-term appreciation analysis in New York
Understanding historical property appreciation patterns can help you identify areas with strong long-term growth potential for your 1031 exchange replacement property.
42.3%
74.0%
187.5%
Continued appreciation expected, with Manhattan showing a 4% year-over-year price decrease in Q4 2024 but expected to rebound in 2025, while Brooklyn and Queens continue to show growth supported by strong demand and limited supply
38.7%
65.2%
112.8%
Strong appreciation projected, particularly for properties in Nassau County and western Suffolk County, with median home prices up 9.2% year-over-year in 2024, driven by limited inventory and strong demand from NYC outmigration
45.3%
72.8%
124.6%
Strong appreciation expected, particularly in Westchester, Rockland, and lower Orange counties, with median home prices up 12.3% year-over-year in 2024, driven by continued demand from NYC residents seeking more space
52.8%
83.6%
107.2%
Strong appreciation projected, with Rochester, Syracuse, and Buffalo among the hottest markets in the nation in 2024, showing double-digit price growth due to affordability and economic development initiatives
Current rental trends and opportunities in New York
Understanding the rental market is crucial when selecting investment properties for your 1031 exchange. This analysis provides insights into current rental conditions across the state.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $3,500 - $7,000+ (1BR) | 3.5% | up | 3.0% - 4.0% |
| Class B Apartments | $2,200 - $3,500 (1BR) | 2.8% | up | 4.0% - 5.0% |
| Rent-Stabilized Apartments | Varies by unit history | 1.5% | regulated | 2.5% - 3.5% |
New York City's rental market serves a diverse tenant base, including young professionals, families, students, and high-income individuals. The market has significant variation by neighborhood and borough, with Manhattan commanding the highest rents followed by Brooklyn, Queens, and the Bronx. Approximately 65% of NYC residents are renters, with the median renter household income around $67,000.
NYC has extensive rent regulation, with approximately 50% of rental units subject to rent stabilization or rent control. The 2019 Housing Stability and Tenant Protection Act significantly strengthened tenant protections and limited rent increases. Eviction processes are tenant-favorable and can be lengthy, particularly for rent-regulated units. Short-term rentals are heavily restricted, with rentals under 30 days generally prohibited unless the permanent resident is present.
The NYC rental market has fully recovered from pandemic-era declines, with median rents reaching new highs in most neighborhoods. The market is expected to remain strong, supported by limited new construction, strong employment growth, and continued migration to the city. Rent growth is projected to moderate but remain positive, with stronger performance in outer boroughs and emerging neighborhoods.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $2,500 - $4,000 (1BR) | 3.0% | up | 4.0% - 5.0% |
| Class B Apartments | $1,800 - $2,500 (1BR) | 2.5% | up | 5.0% - 6.0% |
| Single Family Homes | $3,000 - $5,000 (3BR) | 2.0% | up | 4.5% - 5.5% |
Long Island's rental market serves a mix of young professionals, empty nesters, and families. The market has significant variation between Nassau and Suffolk counties, with Nassau commanding higher rents due to proximity to NYC. Approximately 20% of Long Island residents are renters, with the median renter household income around $75,000.
Long Island has limited rent regulation compared to NYC, with most rental units subject to market forces. However, some municipalities have implemented tenant protection measures, and the state's 2019 Housing Stability and Tenant Protection Act applies throughout New York State. Eviction processes follow state law and are generally more straightforward than in NYC, though still tenant-favorable compared to many other states.
The Long Island rental market is expected to remain strong, supported by limited new construction, continued migration from NYC, and strong employment growth. Rent growth is projected to continue at a moderate pace, with stronger performance in areas with good access to transportation and amenities.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $1,400 - $2,200 (1BR) | 4.0% | up | 5.5% - 6.5% |
| Class B Apartments | $900 - $1,400 (1BR) | 3.5% | up | 6.5% - 7.5% |
| Student Housing | $700 - $1,200 per bedroom | 5.0% (seasonal variation) | up | 7.0% - 8.0% |
Upstate cities' rental markets serve a mix of students, young professionals, families, and empty nesters. The markets have significant variation between cities, with Buffalo, Rochester, and Syracuse showing different characteristics. Student populations significantly influence these markets, with large universities creating strong demand in specific neighborhoods. Approximately 40% of residents in upstate cities are renters, with the median renter household income around $45,000.
Upstate cities have limited rent regulation compared to NYC, with most rental units subject to market forces. However, the state's 2019 Housing Stability and Tenant Protection Act applies throughout New York State, providing certain tenant protections. Eviction processes follow state law and are generally more straightforward than in NYC, though still tenant-favorable compared to many other states.
Upstate rental markets are expected to remain strong, supported by limited new construction, economic revitalization, and strong demand from student populations and young professionals. Rent growth is projected to continue at a healthy pace, particularly in neighborhoods near universities, medical centers, and revitalized downtown areas.
Key mistakes to avoid in your 1031 exchange
New York has some of the highest transaction costs in the nation, particularly in NYC where combined transfer taxes, mansion tax, and closing costs can exceed 5% of the transaction value. These costs cannot be deferred through a 1031 exchange and must be paid from non-exchange funds.
Budget for transaction costs separately from your exchange funds. In NYC, be prepared for state transfer tax (0.4%), city transfer tax (1% to 2.625% depending on property type and value), mansion tax (1% to 3.9% for residential properties over $1 million), and standard closing costs. Consider working with a tax professional to accurately estimate these costs and plan accordingly.
New York, particularly NYC, has extensive rent regulation, with approximately 50% of rental units subject to rent stabilization or rent control. The 2019 Housing Stability and Tenant Protection Act significantly strengthened tenant protections and limited rent increases, affecting property valuation and investment returns.
Conduct thorough due diligence on any multifamily property to determine its rent regulation status. Review rent rolls, leases, and registration history to verify which units are regulated and at what rents. Work with attorneys and brokers who specialize in rent-regulated properties to accurately assess the impact on valuation and future cash flow. Consider the limited upside potential of regulated units when evaluating replacement properties.
Non-resident sellers of New York property must comply with Form IT-2663 (for residential property) or Form IT-2664 (for non-residential property) withholding requirements. Non-residents must withhold 7.7% of the gain on the sale unless an exemption applies, which can create complications for 1031 exchanges.
Work with a qualified intermediary and tax professional experienced with New York non-resident withholding requirements. Ensure that the appropriate exemption forms are completed and submitted at closing to avoid withholding. Be prepared to provide documentation of your 1031 exchange to support the exemption claim. File the required New York non-resident tax return even if no tax is due because of the exchange.
New York has significant regional variations in market dynamics, price points, and investment characteristics. Investors who don't understand these differences often make poor location decisions based on price alone.
Research specific submarkets rather than relying on statewide or citywide data. Work with real estate professionals who specialize in the specific region where you're considering investing. Consider factors like economic drivers, population trends, and local regulations that may vary significantly between regions. Visit potential investment areas in person to gain firsthand knowledge of neighborhood characteristics and market conditions.
Common questions about New York 1031 exchanges
Yes, New York taxes capital gains as ordinary income, with rates ranging from 4% to 10.9% depending on income level and filing status. New York City residents face additional local income taxes ranging from 3.078% to 3.876%. While a 1031 exchange defers these taxes, they will eventually be due upon a taxable sale of the replacement property. The potential combined federal, state, and local tax burden can exceed 40% for high-income NYC residents, making the tax deferral benefits of 1031 exchanges particularly valuable in New York.
New York follows federal 1031 exchange rules without adding state-specific requirements for the exchange itself. The same 45-day identification period and 180-day completion period apply, and the same qualified intermediary requirements must be followed. However, non-resident sellers must comply with Form IT-2663 (for residential property) or Form IT-2664 (for non-residential property) withholding requirements, claiming an exemption for 1031 exchanges. Additionally, all sellers must file Form TP-584 (Combined Real Estate Transfer Tax Return), which includes a section for claiming 1031 exchange status.
Transfer taxes and the mansion tax in New York cannot be deferred through a 1031 exchange and must be paid at the time of transaction. New York State imposes a transfer tax of $2 per $500 of consideration (0.4%), and New York City imposes an additional transfer tax ranging from 1% to 2.625% depending on property type and value. Additionally, residential properties selling for $1 million or more are subject to a 'mansion tax' with rates ranging from 1% to 3.9% depending on the purchase price. These taxes represent additional transaction costs that must be funded from non-exchange proceeds.
Rent regulation in New York, particularly in NYC, can significantly impact property valuation and investment returns. Approximately 50% of rental units in NYC are subject to rent stabilization or rent control, limiting rent increases and providing strong tenant protections. The 2019 Housing Stability and Tenant Protection Act significantly strengthened these protections, eliminating many pathways for deregulating units and limiting the ability to increase rents based on improvements. Investors should carefully evaluate the rent regulation status of potential replacement properties and understand the implications for future cash flow and appreciation potential.
Yes, 1031 exchanges can be used for interstate transactions. In fact, many investors use 1031 exchanges to move their real estate investments from other states to New York, or from New York to other states. When conducting an interstate exchange, it's important to work with a qualified intermediary and tax professionals familiar with the tax laws in both states to ensure compliance with all applicable regulations. Non-residents acquiring New York property should be aware of the state's income tax filing requirements for non-resident property owners.
The best areas for real estate investment in New York depend on your investment goals and strategy. Currently, upstate cities like Rochester, Syracuse, and Buffalo offer some of the strongest appreciation potential combined with relatively high cap rates, with Rochester showing a remarkable 22.7% year-over-year price increase. The Hudson Valley offers a balance of appreciation potential and cash flow, benefiting from continued migration from NYC and remote work trends. Within NYC, Brooklyn continues to outperform Manhattan, with neighborhoods like Bushwick, Bed-Stuy, and Crown Heights offering strong appreciation potential with relatively higher cap rates than prime Manhattan locations. For industrial properties, the I-90 corridor from Buffalo to Albany offers strong opportunities due to manufacturing resurgence and logistics demand.