Resources / Selling rental property in New York

Selling Rental Property in New York: Capital Gains and Deferral

By Sean Whitehead, Structured Settlement Consultant & Content Contributor · October 30, 2026 · 11 min read

Selling rental property in New York, capital gains are ordinary income. The state has no lower long-term rate. A New York City resident adds city income tax. Federal tax still stacks a top rate of 20%, the 3.8% net investment income tax, and unrecaptured section 1250 gain at a maximum of 25%. How to defer capital gains on rental property in New York depends on which of those you mean. A structured installment sale under IRC §453 can spread the income tax. It does not spread the transfer tax due when the deed is delivered.

Rates on any large New York gain, including a business, are in the New York state guide. This page is the rental file: one to four units, a small multifamily building, or mixed-use or commercial property, and how the city differs from the rest of the state. See also selling rentals without a 1031 and the apartment-complex guide.

Current figures

Current figures, tax year 2026. Update this box when a rate, bracket, or form year changes. The rest of the article does not depend on a particular year. Confirm the figures against the sources before you rely on them.

Federal long-term capital gains, 2026 taxable-income thresholds: married filing jointly, 0% up to $98,900, 15% up to $613,700, and 20% above that. Single, 0% up to $49,450, 15% up to $545,500, and 20% above that.
Net investment income tax: 3.8% on the lesser of net investment income or the amount of modified adjusted gross income over $250,000 (married filing jointly) or $200,000 (single). Those thresholds are not indexed.
Unrecaptured §1250 gain: federal tax at a maximum of 25%. New York does not use that cap.
New York State income tax, 2026. No lower rate for long-term gain. Joint taxable income: 5.40% from $27,900 to $161,550; 5.90% to $323,200; 6.85% to $2,155,350; 9.65% to $5,000,000; 10.3% to $25,000,000; 10.9% above. Single: 6.85% from $215,400 to $1,077,550; 9.65% to $5,000,000; then the same 10.3% and 10.9% thresholds. If New York adjusted gross income is $107,650 or less, the rate table applies, starting at 3.90%. Above $107,650, a supplemental computation recaptures the benefit of the lower brackets. The 9.65%, 10.3%, and 10.9% rates run through tax year 2032. Current law puts the top rate back at 8.82% for tax years 2033 and after.
New York City resident income tax, 2026. Joint city taxable income: 3.078% up to $21,600, 3.762% up to $45,000, 3.819% up to $90,000, and 3.876% above $90,000. Single: 3.078% up to $12,000, 3.762% up to $25,000, 3.819% up to $50,000, and 3.876% above $50,000. City residents only. The school tax credit's rate reduction is unavailable when income is over $500,000.
Yonkers resident income tax surcharge: 16.75% of net New York State tax. The Yonkers nonresident earnings tax is on wages and self-employment earnings, not on gain from a sale of property.
Form IT-2663, tax year 2026: a nonresident's estimated tax on an installment sale is 10.90% of the gain reported on that year's federal return. 10.90% is the highest rate for the year, not the seller's bracket.
Transfer taxes, which an installment sale does not defer. State base tax: $2 per $500 of consideration (0.4%) when consideration exceeds $500, paid by the grantor. In New York City, an additional base tax of $1.25 per $500 (0.25%) applies to residential real property at $3 million or more, and to other property at $2 million or more. The additional tax, often called the mansion tax, is 1% of residential consideration of $1 million or more, paid by the grantee. Residential for that tax is a one-, two-, or three-family house, an individual condominium unit, or a cooperative apartment. In New York City, a supplemental tax on residential property of $2 million or more, also paid by the grantee, is 0.25% from $2 million, 0.50% from $3 million, 1.25% from $5 million, 2.25% from $10 million, 2.50% from $15 million, 2.75% from $20 million, and 2.90% at $25 million or more. New York City real property transfer tax: 1% up to $500,000 and 1.425% above that for a one- to three-family house, an individual residential condominium, or an individual cooperative apartment; 1.425% up to $500,000 and 2.625% above that for other transfers, including larger multifamily and commercial buildings.

How the income tax is stacked

New York starts from federal adjusted gross income. Gain on Form 6252 is New York income in the same year, unless a move pulls it forward under the rule below. There is no state subtraction for long-term gain, and no 25% ceiling. Straight-line depreciation on the building is unrecaptured §1250 gain, taxed federally at no more than 25%. The rest of a long-term gain is taxed at 0%, 15%, or 20%. The 3.8% net investment income tax usually reaches rental gain past the threshold in the current-figures box, unless the owner meets the real-estate-professional test.

City income tax follows the owner, not the building. A city resident owes it on a duplex in Rochester. An owner in Westchester, on Long Island outside the city, or upstate, who sells in Brooklyn, owes state tax on that gain and does not owe the city resident tax. Yonkers residents pay the surcharge in the current-figures box. The metropolitan commuter mobility tax is on self-employment earnings, not on this gain.

Transfer tax follows the building

The state base tax is statewide. The 1% mansion tax is also statewide, and only on a one- to three-family house, an individual condo, or a co-op, at $1 million or more. A four-unit building, a mixed-use building, and a larger multifamily building are outside that definition, so the 1% tax does not apply. In New York City the supplemental tax, the extra base tax, and the city's own transfer tax can apply, at the higher city rate once the transfer is outside the one-to-three-family, condo, and co-op class. Those city taxes are not on an upstate closing statement. A one-to-three-family house, condo, or co-op elsewhere in the state can still owe the 1% mansion tax.

The grantor owes the base taxes. The grantee owes the mansion tax and the city supplemental tax. If the person who owes it does not pay, the other side can be required to, and the city return is signed by both. Contracts can move who brings the funds. They do not move the due date. Consideration includes amounts paid over time, and the tax is due when the deed is delivered. Form 6252 does not postpone it. A mortgage the buyer assumes can reduce taxable consideration. One the seller pays off at closing generally does not. A one-to-four-family deed to or from an LLC has to name the people behind the company. Selling the entity instead of the deed can still be New York-source gain, and a controlling-interest transfer can be a conveyance for transfer tax.

Nonresidents, and a later move

A nonresident individual, estate, or trust pays estimated income tax with Form IT-2663 when the deed is recorded, unless an exemption applies. The deed is not recorded without that form and payment, or the exemption on Form TP-584 (TP-584-NYC in the city). Residents at the sale do not file IT-2663. Cooperative shares use Form IT-2664. On an installment sale the form still computes the whole gain, then collects the top rate in the current-figures box on only the gain reported on that year's federal return. Later years use Form IT-2105 if New York tax of at least $300 is expected. Under Tax Law §631, the gain on New York real property stays New York-source as it is recognized. Interest on the payments does not automatically follow the gain.

A move does not, by itself, end that source rule. Installment payments on a Buffalo double or a Queens three-family stay in the New York base after a move to Florida or New Jersey. A permanent place of abode in New York for substantially all of the year, plus more than 183 days in the state, can also leave someone a statutory resident. A homestead elsewhere is evidence on domicile. It is not a switch.

Tax Law §639(a) is a second rule. When a resident becomes a nonresident, income that accrued before the move and was not already included in the resident period is accrued then. The Form IT-260 instructions use unpaid installment gain from a sale made as a resident as the example. The seller can skip that acceleration by posting security acceptable to the Department, for at least the extra tax, and reporting those amounts as received on later nonresident returns as if residency had not changed. Amounts accrued under §639 are not taxed again, so §639(c) and the source rule have to be applied together. A former city resident who uses that election keeps paying city tax on the accrued amounts. A move from the city to another New York county, while state residency continues, is Form IT-360.1 under Tax Law §1307. Section 639(b), for someone moving into New York, does not accrue New York-source items, including gain on New York real property, back to the nonresident period.

What a structured installment sale changes

Before closing, the contract has to call for part of the price over time. The buyer pays at closing. The deferred part goes to an assignment company, and an annuity from a highly rated life insurer funds the seller's schedule. The seller cannot have an unrestricted right to that cash. What a structured installment sale is and the §453 guide cover the gross-profit percentage. Each Form 6252 payment is basis, gain, and ordinary interest.

Under §453(i), §1245 recapture, and §1250 recapture above straight line, is income in the year of sale. That includes appliances and assets a cost-segregation study moved into §1245. Unrecaptured §1250 gain, the straight-line depreciation on the building, can follow the payments. Treasury regulation §1.453-12 recognizes it first, at a federal maximum of 25%. New York taxes that slice as ordinary income when it is recognized. Suspended passive losses release in proportion to the gain under §469(g)(3). Cash used to pay off a mortgage is taxed in year one, and a mortgage above basis means a structure spreads much less. Dealer property, including a flip, cannot use the method. A related buyer who resells within two years can pull gain forward under §453(e).

It fits an owner who is finished with the building, whose one-year gain would reach the 20% federal rate, the 3.8% tax, or a higher New York bracket, and whose mortgage is well under basis. It does not fit a small gain, a need for all the cash, a refinance that already used the basis, or a plan to hold for a new basis at death under §1014. An installment still open at death is income in respect of a decedent. A seller about to leave New York should price §639 first. Without security, the unpaid state gain can land in the year of the move.

How the other exits compare

An outright sale fits a modest gain or cash that has a job. Transfer tax does not change if the income is reported over time. A 1031 exchange defers income tax only by buying replacement real property, within 45 and 180 days. New York follows federal adjusted gross income, so the state deferral lasts while the federal one does, and the owner is still an owner. If it fails, the failed-exchange page is what remains open. A Delaware statutory trust can be that replacement, without tenants and without control of the later sale. A deferred sales trust is not an installment sale under §453. That comparison, and the wider strategy comparison, are the places to read the differences. Neither makes the tax disappear.

An opportunity-zone investment defers eligible gain only when that gain goes into a qualified opportunity fund, as equity, on the statutory clock. Ordinary recapture generally does not qualify. A structured installment sale does not require a fund or another building, and it does not offer a fund's possible exclusion of later growth. Cash recognized at closing might be invested. The portion assigned to the schedule is not cash the seller can then put in a fund.

A hypothetical example

Hypothetical example. Not an appraisal, not a quote of tax, and not any real building. The sale price and the gain are made up so the timing can be described. This example does not compute a tax bill.

A married couple lives in New York City and files jointly. They sell a hypothetical two-family house in Brooklyn for $1,100,000. Selling costs are $40,000, adjusted basis is $460,000, and the long-term gain is $600,000. They have $40,000 of other ordinary income. The standard deduction, itemized deductions, the New York City school tax credit, interest on any note, and §1245 recapture are left out. The installment sketch recognizes the gain in ten equal slices of $60,000. A real Form 6252 would apply a gross-profit percentage to each payment, which this sketch does not. The brackets below are the ones in the current-figures box.

In a lump-sum year, the gain is stacked on that other income. Part of it is taxed at the 20% federal long-term rate, and modified adjusted gross income is over the net investment income tax threshold. Spread across ten years, each year's slice of gain is much smaller. With other income this low, most of each year's gain is taxed in the 0% federal band, and the year's income stays under the net investment income tax threshold. Most of that difference exists because other income is low enough to reopen the 0% band and to stay under the threshold. A pension, Social Security, or another rental still in service can close both. The timing benefit gets smaller as other income rises.

New York taxes the gain as ordinary income either way. There is no lower statutory rate on capital gain. In the lump-sum year, New York adjusted gross income is high enough that the supplemental computation has finished recapturing the benefit of the lower brackets, so the gain is taxed at the flat 6.85% rate. Spread over ten years, adjusted gross income stays low enough that the rate table applies and the supplemental worksheets do not, and the $60,000 of gain sits in the 5.40% band. That difference is from staying in the rate table. It is not a lower statutory rate on capital gain. City brackets are compressed, so spreading a gain this size changes the city result less than it changes the state result. The school tax credit left out of this sketch can matter more for the timing, because the rate reduction is unavailable once income is over $500,000.

Transfer tax on the $1,100,000 price is the same either way. At this price a two-family house owes the state base tax, the city real property transfer tax in the 1.425% residential class, and the mansion tax, because residential consideration is over $1 million and under $2 million. No city supplemental tax and no additional base tax apply at this price. The mansion tax is the buyer's statutory liability. The same house outside New York City would still owe the state base tax and the mansion tax, and would not owe the city real property transfer tax. If the sellers lived in New York but outside the city, they would not owe city income tax, and the state income tax would remain. Installment reporting does not remove the federal tax. The calculator tries a different price, basis, and state. It does not compute IT-2663, the mansion tax, or §639.

Frequently asked questions

Does New York tax capital gains on a rental at a lower rate?

No. New York taxes the gain as ordinary income. There is no lower long-term rate. A New York City resident also owes city income tax. Federal long-term rates, the 3.8% net investment income tax, and the 25% maximum on unrecaptured section 1250 gain are separate, and New York does not cap its tax at those federal rates.

Does an installment sale defer New York or New York City transfer tax?

No. The state real estate transfer tax, the mansion tax, the New York City supplemental tax, and the city real property transfer tax are due when the property is transferred. They are computed on consideration, including amounts paid over time. Reporting gain on Form 6252 does not postpone them.

What does Form IT-2663 collect from a nonresident who sells New York rental property?

Estimated income tax for a nonresident individual, estate, or trust, paid when the deed is recorded, unless an exemption applies. For an installment sale, the 2026 form computes that payment at 10.90% of the gain reported on that year's federal return, not of the entire deferred gain. The actual tax is reconciled on the income tax return. Residents do not use IT-2663. A cooperative apartment uses Form IT-2664.

If I move out of New York, do later payments on a New York rental stay taxable there?

Gain from New York real property stays New York-source income of a nonresident. Separately, if you were a resident when the installment sale was made, Tax Law section 639 accrues unpaid installment gain to the resident period unless you file acceptable security and keep reporting it. The same dollars are not taxed twice. City residency has its own accrual.

Can depreciation on a New York rental be spread over installment payments?

Partly. Section 1245 recapture, and section 1250 recapture on depreciation above straight line, is ordinary income in the year of sale. Unrecaptured section 1250 gain from straight-line depreciation of the building can be reported as payments arrive, and it is recognized before the other capital gain. New York taxes both as ordinary income.

Sources

New York State Department of Taxation and Finance, Instructions for Form IT-2105 (2026), including the state and city rate schedules, the supplemental tax worksheets, the Yonkers resident surcharge of 16.75%, and the $300 estimated-tax threshold — tax.ny.gov
New York State Department of Taxation and Finance, personal income tax expenditure estimates, describing law as of January 1, 2026, including the 9.65%, 10.3%, and 10.9% rates through tax year 2032 — tax.ny.gov
New York Tax Law §612 (federal adjusted gross income as the starting point) and §631 (New York-source income of a nonresident, including gain from real property in the state) — nysenate.gov
New York Tax Law §639 (accruals on a change of residence) and §1307 (city resident status) — nysenate.gov
N.Y. Comp. Codes R. & Regs. tit. 20, §154.10 (special accruals, including unpaid installment gain) — law.cornell.edu
Instructions for Form IT-260 and Form IT-260.1, Change of Resident Status, Special Accruals (revised December 2025) — tax.ny.gov
Instructions for Form IT-2663, Nonresident Real Property Estimated Income Tax Payment Form, tax year 2026, including installment sales and the 10.90% rate — tax.ny.gov
New York State Department of Taxation and Finance, real estate transfer tax, and Instructions for Form TP-584-NYC (August 2025), including the base tax, the additional base tax, the mansion tax, and the supplemental-tax rates — tax.ny.gov and TP-584-NYC-I
Publication 577, the additional tax on transfers of residential real property for $1 million or more — tax.ny.gov
New York City Department of Finance, Real Property Transfer Tax, including the 1% / 1.425% residential rates and the 1.425% / 2.625% rates on other transfers — nyc.gov
IRS Revenue Procedure 2025-32, inflation-adjusted items for 2026, including long-term capital gain thresholds — irs.gov
26 U.S.C. §1(h) (unrecaptured §1250 gain), §453 (installment method, including §453(i)), §1245, §1250, §469(g), and 26 C.F.R. §1.453-12
IRS Publication 537, Installment Sales and Publication 544, Sales and Other Dispositions of Assets

Last reviewed: October 30, 2026.

If a sale is taking shape, bring the New York return preparer in before the purchase agreement is signed. The installment schedule, the depreciation file, the transfer-tax class of the building, and any plan to change residence are all harder to fix after closing. We will model the payment side with both of you, and say so when a 1031 exchange or holding fits the building better.

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