1031 Exchange in New York
New York conforms to federal Section 1031, so a properly structured like-kind exchange defers New York State income tax on the same timeline as federal tax. New York has no clawback provision that recaptures deferred gain when you exchange into out-of-state property. New York does not tax capital gains at a separate rate — gain is taxed as ordinary income at the state's graduated rates, which top out at 10.9%, and New York City residents owe an additional city income tax on top of that. Nonresidents selling New York property normally prepay estimated tax on Form IT-2663 at closing, but a qualifying 1031 exchange is exempt from that payment.
Fast Facts
- State Income Tax on Capital Gains
- New York taxes capital gains as ordinary income at its graduated personal income tax rates, which top out at 10.9%. There is no separate, lower capital-gains rate. New York City residents also pay an additional city income tax.
- Conforms to Federal 1031
- Yes. New York follows federal like-kind exchange rules, and Form IT-2663 expressly recognizes an exchange where no gain or loss is recognized under IRC § 1031, so a valid federal deferral is generally honored for New York tax.
- Clawback Rule
- No. New York does not impose a clawback that adds deferred gain back to New York income when you exchange New York property into out-of-state replacement property.
- Non-Resident Withholding
- Nonresident individuals, estates, and trusts normally pay estimated tax on the gain via Form IT-2663 at closing, but a qualifying IRC § 1031 exchange is exempt — you mark box 4B and note the exchange rather than paying.
- Transfer Tax
- New York State real estate transfer tax is $2 for each $500 of consideration (0.4%), paid by the seller, plus a 1% "mansion tax" on residential conveyances of $1 million or more. Local transfer taxes (e.g., New York City) may also apply.
How New York Treats a 1031 Exchange
New York is a conforming state: it follows the federal like-kind exchange rules of IRC Section 1031, so when a delayed exchange is properly structured through a Qualified Intermediary, New York defers the state income tax on the gain on the same timeline it is deferred for federal purposes. This conformity is visible in New York’s own nonresident tax form: Form IT-2663 instructs a seller who exchanges real property for real property of a like kind, “and no gain or loss is recognized under IRC § 1031,” to mark box 4B, summarize the exchange, and indicate that the transaction is an IRC § 1031 like-kind exchange — the same transaction reported on federal Form 8824.
Unlike a handful of states (such as Oregon and California) that track deferred gain and recapture it later, New York does not have a clawback provision. If you exchange New York property into replacement property located in another state, New York does not add the previously deferred New York gain back to your income when you eventually sell the out-of-state property. That said, if a later transaction is a taxable New York event — for example, gain attributable to a New York property recognized in a partial exchange, or boot received — New York will tax that recognized gain in the year it is recognized.
Legal and Tax Considerations
State Income Tax on Capital Gains
Taxed as ordinary income at New York's graduated rates, topping out at 10.9%. No separate capital-gains rate. NYC residents owe an additional city income tax.
Conforms to Federal 1031
Yes. Form IT-2663 recognizes an IRC § 1031 like-kind exchange where no gain or loss is recognized, so the federal deferral is generally honored for New York tax.
Clawback
None. New York has no provision recapturing deferred gain on exchanges into out-of-state replacement property.
Non-Resident Withholding
Estimated tax on the gain is normally due via Form IT-2663 at closing, but a qualifying § 1031 exchange is exempt from the payment (mark box 4B).
Required Documentation
- Federal Form 8824 (Like-Kind Exchanges)
- New York Form IT-2663 (Nonresident Real Property Estimated Income Tax) — required for nonresident sellers; mark box 4B for a § 1031 exchange
- New York Form TP-584 (Combined Real Estate Transfer Tax Return) filed with the county clerk
- Qualified Intermediary exchange agreement and assignment documents
- Complete closing/settlement statements for both the relinquished and replacement properties
Clawback Rule
None
Official References
- NYS Form IT-2663 Instructions (Nonresident Real Property Estimated Income Tax) — § 1031 exchange, box 4B
- NYS Department of Taxation and Finance — 2025 Tax Tables and Rate Schedules
- NYS Department of Taxation and Finance — Real Estate Transfer Tax
- NYS Form TP-584 (Combined Real Estate Transfer Tax Return)
- IRS Form 8824 — Like-Kind Exchanges
New York Tax Rates and Transaction Costs
New York does not apply a separate, preferential rate to capital gains. Gain from selling investment real estate is folded into ordinary taxable income and taxed at New York’s graduated personal income tax rates. For the 2025 tax year those rates run from 4% at the bottom up to a top marginal rate of 10.9%, which the New York State Department of Taxation and Finance applies to the highest income levels shown in its rate schedules. New York City residents owe an additional New York City personal income tax on top of the state tax, so a New York City investor can face one of the highest combined state-and-local income tax burdens in the country. Because the deferral you get from a 1031 exchange is measured against that full rate stack, the tax at stake in a New York exchange can be significant — which is exactly why the exchange mechanics and the nonresident estimated-tax exemption matter.
On the transaction side, New York imposes a state real estate transfer tax of $2 for each $500 of consideration (0.4%), generally paid by the seller and reported on Form TP-584 filed with the county clerk. Residential conveyances of $1 million or more carry an additional 1% “mansion tax.” New York City (and some other localities) layer their own transfer taxes on top of the state tax, so total transfer-tax friction on a city transaction can be considerably higher than the 0.4% state rate alone. A 1031 exchange does not exempt a conveyance from transfer tax — the transfer tax is a separate obligation from the income tax deferral, and it applies to the deed regardless of how the gain is treated.
Step-by-Step Process
- 1
Engage a Qualified Intermediary Before Closing
For a delayed exchange, you must retain a Qualified Intermediary (QI) before you close on the relinquished New York property. You cannot take actual or constructive receipt of the sale proceeds — the QI holds the funds. Setting this up in advance is what preserves the deferral for both federal and New York purposes.
- 2
Sell the Relinquished Property and Handle IT-2663
Close the sale with the QI receiving the proceeds. Report the disposition on federal Form 8824. If you are a nonresident of New York, complete Form IT-2663: for a qualifying § 1031 exchange you mark box 4B, give a brief summary of the exchange, and indicate it is an IRC § 1031 like-kind exchange rather than paying estimated tax. Form TP-584 is filed for the transfer tax.
- 3
Identify Replacement Property Within 45 Days
You have 45 calendar days from the sale of the relinquished property to formally identify potential replacement property in writing, following the federal identification rules (such as the three-property rule or the 200% rule).
- 4
Close on Replacement Property Within 180 Days
You must acquire the replacement property within 180 calendar days of the sale (or your tax-return due date including extensions, if earlier). Only real property held for investment or business use qualifies under post-2017 federal law.
- 5
Report the Exchange on Your Returns
Report the exchange on federal Form 8824 and on your New York return. Because New York has no clawback, there is no ongoing annual New York tracking form for an exchange into out-of-state property — but keep complete records, since any later recognized gain (including boot) is taxable in the year it is recognized.
Timeline Calculator
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
Frequently Asked Questions
Yes. New York follows the federal like-kind exchange rules of IRC Section 1031, so a properly structured 1031 exchange defers New York State income tax on the same timeline as federal tax. New York's own Form IT-2663 expressly recognizes a transaction where no gain or loss is recognized under IRC § 1031, confirming that the state honors the federal deferral.
No. Unlike states such as Oregon and California, New York does not impose a clawback that recaptures previously deferred gain when you exchange New York property into out-of-state replacement property. There is no ongoing New York tracking form for the deferred gain. New York does, however, tax any gain that is actually recognized in a New York transaction — for example, boot received or a partial exchange — in the year it is recognized.
Generally no. Nonresident individuals, estates, and trusts normally must compute and prepay estimated tax on the gain using Form IT-2663 at closing. But if the sale is a qualifying IRC § 1031 like-kind exchange in which no gain or loss is recognized, the instructions direct you to mark box 4B, give a brief summary of the exchange, and indicate it is a § 1031 exchange — no estimated-tax payment is required. You will also file federal Form 8824 for the exchange.
New York taxes capital gains as ordinary income at its graduated personal income tax rates, which top out at 10.9% for the 2025 tax year, with no separate lower capital-gains rate. New York City residents owe an additional city income tax on top of that. Any gain that is recognized — such as boot in a partial exchange or gain from a failed exchange — is taxed at the applicable ordinary rate. Check the New York State Department of Taxation and Finance rate schedules for the current brackets.
No. New York's real estate transfer tax ($2 per $500 of consideration, or 0.4%, plus a 1% mansion tax on residences of $1 million or more, and any local transfer tax) is separate from income tax. It applies to the deed regardless of whether the gain is deferred under Section 1031. The transfer tax is reported on Form TP-584 and is generally paid by the seller.
Related Guides
- What Is a 1031 Exchange? — the complete federal framework, deadlines, and rules
- 1031 Exchange by State — compare New York with other states’ rules and clawback provisions
- Albany-Schenectady-Troy, NY
- Binghamton, NY
- Buffalo-Cheektowaga-Niagara Falls, NY
- Elmira, NY
- Glens Falls, NY
- Ithaca, NY
References
Official References
- NYS Form IT-2663 Instructions (Nonresident Real Property Estimated Income Tax)
- NYS Department of Taxation and Finance — 2025 Tax Tables and Rate Schedules
- NYS Department of Taxation and Finance — Real Estate Transfer Tax
- NYS Form TP-584 (Combined Real Estate Transfer Tax Return)
- IRS Form 8824 — Like-Kind Exchanges
This information is for educational purposes only and is not legal or tax advice. Consult with qualified professionals regarding your specific situation.