1031 Exchange Rules in New York

Last reviewed: June 2026. State rules change. Verify current forms before closing.

What Is Different in New York

New York pairs the second-highest state tax rate in the country with a withholding regime that runs through the deed-recording process. Nonresident sellers must file Form IT-2663 (IT-2664 for co-ops) and pay estimated tax on the gain at the highest rate — 10.90% for 2026 — before the deed records. The 1031 exemption is built directly into the form: certify the exchange, and no payment is due. New York City adds a layer of confusion that trips up many investors, so this page covers the NYC overlay too.

Does New York Conform to IRC Section 1031?

Yes. New York follows the federal like-kind exchange rules for real property. A 1031 exchange is an IRS-approved way to sell investment property and buy replacement property without paying tax on the gain right away. If your exchange qualifies for federal deferral, New York defers its income tax too. New to exchanges? Start with our 1031 exchange guide.

Your replacement property can be in any state, and New York has no claw-back or annual tracking of deferred gain afterward.

New York Tax Rate on Real Estate Gains

New York’s top income tax rate is 10.90% for 2026. On a $500,000 gain, that can mean up to roughly $54,500 of state tax in addition to the federal bill — before any New York City resident income tax. A qualifying exchange may defer all of the income tax.

Beware stale numbers. Older charts still circulate showing 7.7% or 8.82% withholding — the 2026 IT-2663 instructions specify estimated tax on the gain at 10.90%.

Nonresident Withholding at Closing: Form IT-2663

Under N.Y. Tax Law Section 663, a nonresident seller must file Form IT-2663 (Form IT-2664 for cooperative units) with the recording officer before the deed records, paying estimated tax on the gain at the highest rate, 10.90% for 2026. The companion transfer-tax return, TP-584, carries a parallel exemption certification in its Schedule D.

Unlike states that withhold a percentage of the gross price, New York computes the payment on the gain — but the form must be dealt with either way, because the deed does not record without it.

How 1031 Exchangers Claim the Exemption

The exemption lives on the IT-2663 itself — no separate application, no waiting period:

• Fully deferred exchange. Complete the exemption certification on IT-2663: mark the 1031 exchange box (box 4B) and summarize the exchange. No payment is due.
• Co-ops. Same mechanics on Form IT-2664.
• Transfer-tax return. TP-584 Schedule D carries the parallel certification; in New York City, recordings generally use TP-584-NYC instead.
• Partial exchange (boot). Recognized gain does not qualify for the certification — estimated tax applies to the gain you recognize.

Your qualified intermediary documents the exchange that supports the certification. A qualified intermediary is the independent party that holds your sale proceeds during an exchange. WealthBuilder 1031 prepares the exchange documentation your closing team needs for IT-2663 and TP-584.

The New York City Overlay

Three things to know if your property is in the five boroughs:

• NYC has no separate 1031 regime. The exchange itself is governed by federal and state rules; there is no additional NYC exemption to apply for.
• NYC RPTT applies regardless. The NYC Real Property Transfer Tax is a transfer tax, not an income tax — it applies to the conveyance whether or not your gain is deferred under Section 1031. Budget for it; an exchange does not remove it.
• Paperwork differs. NYC recordings generally use TP-584-NYC rather than the statewide TP-584, and nonresident sellers remain subject to IT-2663 where applicable. Certain entity-interest transfers can also trigger NYC transfer-tax rules even without a deed.

Federal Taxes Still Apply

A New York exchange defers two layers: federal and state. Here is what a taxable sale looks like without an exchange, using round numbers.

Example: $1,000,000 sale of a New York rental. Original purchase $600,000, with $100,000 of depreciation taken, so the adjusted basis is $500,000 and the total gain is $500,000.

Figures are illustrative and rounded. Your rates depend on income, filing status, and basis, and NYC residents face city income tax on top. A qualifying 1031 exchange may defer the entire income-tax amount. Run your own numbers with our 1031 exchange calculators, then confirm them with your tax advisor.

Risks and Things That Go Wrong in New York Exchanges

• Missing the IT-2663 at recording. The deed does not record without the form. A seller who shows up without the exemption certification completed pays estimated tax at 10.90% of the gain and waits for a refund.
• Relying on stale rate charts. 7.7% and 8.82% figures from older guides are wrong; the 2026 instructions specify 10.90%.
• Expecting the exchange to erase NYC RPTT. Transfer taxes are independent of income-tax deferral. The RPTT is due on an exchanged property like any other conveyance.
• Boot surprises. Cash taken at closing or mortgage relief not offset with new debt or additional cash becomes recognized gain — and recognized gain does not qualify for the IT-2663 certification.
• Failed deadlines. The federal 45-day identification and 180-day completion rules apply with no state extensions. See the IRS rules for 1031 exchanges.
• Deferral is not elimination. The IRS and New York will tax the deferred gain when you eventually cash out. Plan the exit, not just the exchange.

New York 1031 Exchange FAQs

Do I pay New York estimated tax at closing if I do a 1031 exchange?
Not on a fully deferred exchange. Complete the exemption certification on Form IT-2663 — mark the 1031 box (4B) and summarize the exchange. No payment is due.

What rate does New York apply?
Estimated tax on the gain at the highest rate, 10.90% for 2026, via IT-2663 (IT-2664 for co-ops) filed before the deed records.

Does a 1031 exchange avoid the NYC transfer tax?
No. The NYC RPTT is a transfer tax that applies independently of income-tax deferral. The exchange defers income tax, not transfer tax.

What form is used for NYC recordings?
Generally TP-584-NYC, rather than the statewide TP-584. Nonresident sellers remain subject to IT-2663 where applicable.

Does New York track my deferred gain after the exchange?
No. New York has no claw-back rule and no annual reporting tied to deferred exchange gain.

Sources

• N.Y. Tax Law Section 663
• NYS Department of Taxation and Finance, Form IT-2663 (2026) and instructions
• Form TP-584 / TP-584-NYC
• NYC Administrative Code Title 11, Chapter 21 (Real Property Transfer Tax)

Want to learn more? Our 1031 exchange guide covers the full process from sale to replacement. Ready to start a New York exchange? WealthBuilder 1031 is attorney-owned, serves all 50 states, and charges a flat $1,000 fee. Start at WealthBuilder1031.com or call 888-508-1901.

This page does not constitute legal or tax advice. Consult your attorney and tax advisor about your specific situation.

Ready to start your New York 1031 exchange? WealthBuilder 1031 acts as your qualified intermediary for a flat $1,000 fee, $750 at your sale and $250 at your purchase. See our New York 1031 exchange services to get started.