1031 Exchanges in New York: A Complete Guide
New York is one of the most complex states for real estate investors conducting 1031 exchanges. Between New York State income tax, New York City transfer taxes, and the state's partial conformity with federal 1031 exchange rules, there are important nuances that every New York investor needs to understand before proceeding.
New York State Capital Gains Tax
Unlike Florida, New York does not have a preferential capital gains tax rate. Capital gains from real estate sales are taxed as ordinary income in New York, at rates up to 10.9% for high earners. Add the New York City income tax of up to 3.876% for NYC residents, and the combined state and local tax burden on a New York real estate sale can exceed 14%.
A properly structured 1031 exchange defers both the federal and New York state capital gains taxes.
Does New York Conform to Federal 1031 Exchange Rules?
New York generally conforms to federal 1031 exchange rules for real property exchanges. However, there are important differences:
New York Depreciation Recapture: New York has its own depreciation recapture rules that can differ from federal treatment. Work with a tax advisor familiar with New York law.
New York Nonresident Withholding: If you are a nonresident selling New York real property, New York requires withholding of estimated tax at closing unless you obtain a withholding certificate. Your QI can help coordinate this.
New York City Real Property Transfer Tax: NYC imposes a transfer tax of 1% to 2.625% on real property transfers. This applies to both the sale and purchase in an exchange and is not eliminated by the 1031 exchange.
New York Real Estate That Qualifies for a 1031 Exchange
Investment properties throughout New York State qualify for 1031 exchanges, including:
- Manhattan commercial properties
- Brooklyn and Queens multi-family buildings
- Long Island rental properties
- Upstate New York farmland and commercial real estate
- Vacation properties in the Hamptons or Catskills (subject to IRS safe harbor rules)
The New York 1031 Exchange Process
The federal 1031 exchange timeline applies in New York: 45 days to identify replacement properties and 180 days to close. New York does not extend these deadlines.
Given the complexity of New York real estate transactions, it is especially important to engage your Qualified Intermediary well before closing on your relinquished property. The exchange agreement must be in place before the closing.
Choosing a Qualified Intermediary for New York Exchanges
New York does not license Qualified Intermediaries, making the selection of a qualified, experienced QI critical. 1031 Federal Exchange, led by attorney Steve Wolterman, CES, provides nationwide QI services for New York real estate investors.
Contact us today for a free consultation on your New York 1031 exchange.
Author
Steve Wolterman, Esq., CES
Attorney and Certified Exchange Specialist with over 20 years of experience guiding real estate investors through 1031 exchanges nationwide. Member of the Federation of Exchange Accommodators (FEA).