Does New York recognize 1031 exchanges?
Yes. New York fully conforms to Section 1031: its personal income tax starts from federal adjusted gross income, so a gain the IRS defers in a like-kind exchange is also deferred on your New York return. There is no separate state election and no New York form for the exchange itself.
That conformity matters because New York taxes gains as ordinary income at up to 10.9% in 2026, with most large real estate gains landing at 6.85% or higher. Deferring both the federal and the state tax keeps the full equity working in the replacement building.
Federal 1031 rules that apply in New York
New York uses the federal rules without changes, so the federal deadlines and tests decide whether your exchange works. The table recaps them; the 1031 exchange rules page covers each one in detail.
| Rule | Requirement |
|---|---|
| Property | Real property held for investment or business use, exchanged for like-kind real property |
| Identification | Written list of replacement property within 45 days of the sale |
| Closing | Within 180 days of the sale, or your return due date with extensions if earlier |
| Proceeds | Held by a qualified intermediary; you never take the cash |
| Full deferral | Buy at least as much as you sold and reinvest all net cash |
| Boot | Cash kept or debt not replaced is taxable in the year of sale |
New York withholding at closing: Form IT-2663
New York does not require withholding from residents, but nonresident individuals, estates and trusts selling New York real property must file Form IT-2663 and pay estimated income tax when the deed is recorded with the county recording officer. For 2026 the payment is the gain times 10.90%, the top state rate.
The form is due at recording, not with your return, so it has to be in the closing package. The payment is a prepayment toward your New York nonresident return for the year, not a separate tax. Residents of New York report the sale on their regular resident return and do not file IT-2663.
How a 1031 exchange affects IT-2663
If your exchange defers all of the gain, you check box 4B on Form IT-2663, give a short summary of the exchange, and pay nothing at recording. The instructions treat a transfer where no gain is recognized as exempt from the estimated payment.
A partial exchange is different. If you keep cash or reduce your debt, that boot creates recognized gain, and you figure the payment on the IT-2663 worksheet using the recognized amount instead of the full gain. Either way, you may still need to file a New York nonresident return for the year of the exchange to report the sale.
- Full exchange, no gain recognized: check box 4B, no payment due.
- Partial exchange: pay 10.90% of the recognized gain at recording.
- Failed exchange: the full gain is recognized, so the full 10.90% payment applies.
- Plan the exchange before closing, since the form is filed with the deed.
Does New York have a 1031 clawback?
No. New York has no clawback rule, so you can sell a New York building and buy replacement property in any other state without New York tracking the deferred gain or taxing it when you later sell the out-of-state property.
That is a real difference from the four clawback states. California, Massachusetts, Montana and Oregon require annual filings or later tax on gain that left the state in an exchange. A New York owner who trades a Buffalo fourplex portfolio into a Tennessee apartment complex has no ongoing New York filing for that exchange. If you later sell New York property you still own as a nonresident, that sale goes on a New York nonresident return like any other.
Does New York regulate qualified intermediaries?
No. New York has no statute that licenses, bonds or regulates 1031 qualified intermediaries, so the protection for your exchange funds comes from the intermediary you pick and the contract you sign. The states that do have QI laws include California, Colorado, Connecticut, Idaho, Maine, Nevada, Oregon, Virginia and Washington.
Without a state law, do your own checks. Ask for the intermediary’s fidelity bond and errors and omissions coverage, whether funds sit in a segregated or qualified escrow account in your name, and whether you must sign off before money moves. The guide to choosing a qualified intermediary has a full checklist.
Common 1031 exchange paths for New York owners
Most New York exchanges start with a multifamily building in New York City or the suburbs and end in property with lower taxes and simpler rules. Because New York has no clawback, moving equity out of state carries no later New York cost on the exchange.
- New York City or suburban apartments into upstate multifamily in lower-tax markets, staying in New York but trading into a higher cap rate.
- New York buildings into Sun Belt apartments in states such as Florida and Texas, which have no state income tax on individuals.
- Active management into DST interests, for owners who want to stop dealing with tenants, rent rules and Good Cause notices.
- One large building into two or three smaller ones, to spread risk across markets.
Worked example: a New York 1031 exchange for a nonresident seller
A New Jersey resident owns a 20-unit building in Syracuse and sells it for $2,000,000 in 2026. Selling costs are $90,000, and the adjusted basis after depreciation is $1,150,000, which includes $350,000 of depreciation taken. The gain is $760,000.
Without an exchange, the IT-2663 payment at recording is $82,840 (10.90% of $760,000). Federal tax, if the seller is in the top brackets, is about $198,380: $87,500 at 25% on the depreciation, $82,000 at 20% on the remaining $410,000 and $28,880 of net investment income tax. New Jersey may also tax the gain as a resident, which a CPA will reconcile with the credit for tax paid to New York.
With a full exchange into a replacement of at least $1,910,000, reinvesting all of the cash, the seller checks box 4B and pays nothing at closing, and the federal tax is deferred too. If the seller keeps $150,000 in cash instead, that $150,000 is recognized gain, so the IT-2663 payment is $16,350, and the boot is also taxable federally.
| Scenario | Gain recognized | IT-2663 payment at recording | Federal tax now |
|---|---|---|---|
| Straight sale | $760,000 | $82,840 | About $198,380 |
| Full 1031 exchange | $0 | $0 (box 4B) | $0, deferred |
| Exchange with $150,000 cash kept | $150,000 | $16,350 | Tax on $150,000 of boot |
Timeline tips for a New York exchange
The biggest New York timing risk is the closing itself, because lender payoffs, title work and municipal searches can push a closing date, while your 45-day and 180-day clocks run from the day the sale closes. Line up the replacement search before you list.
Sign the exchange agreement and assign the sale contract to your intermediary before the closing, and tell your title company that IT-2663 will be filed with box 4B checked. If the replacement purchase involves a New York building, the same recording office steps apply on that side. Sellers who close late in the year should also watch the return due date, which can cut the 180 days short unless the return is extended.
How much New York tax a 1031 exchange defers
For a New York resident, an exchange typically defers New York tax at 6.85% or more of the gain, on top of the federal deferral. On a $760,000 gain, a 6.85% estimate puts the deferred state tax near $52,060, and on a gain large enough to reach the 9.65% bracket, which starts above $2,155,350 of joint taxable income, the figure climbs faster.
New York cut its lowest income tax rates for 2026, from 4% to 3.9% at the bottom and from 6% to 5.9% in the fifth bracket, with a second cut scheduled for 2027 through 2032. The 6.85% and higher rates did not change, so the cuts do little to reduce the cost of a taxable sale. A seller weighing a straight sale against an exchange should run the numbers at the bracket the gain actually lands in.
What happens when you later sell the replacement property
The deferred gain becomes taxable when you sell the replacement property in a taxable sale, and which state taxes it depends on where you live and where that property sits at the time. Basis carries over from the New York building, so the old gain and depreciation are still built into the new property.
If you stay a New York resident, New York taxes the full gain on that later sale, wherever the property is, because residents are taxed on all their income. If you have moved away and the replacement is outside New York, New York has no clawback to reach back for the deferred gain. If the replacement is another New York building and you are a nonresident by then, you file IT-2663 again at that sale. Many owners keep exchanging until death, when heirs receive a stepped-up basis under federal law.
Selling into an exchange with Skyline
Skyline buys apartment buildings with five or more units in New York, and many of our sellers are in the middle of an exchange. We buy directly, close on your timeline, and can work inside 1031 deadlines. We can set a closing date that fits your identification period and work with your intermediary on the assignment.
For the full picture, read our complete 1031 exchange guide, and see New York capital gains tax on real estate for what you would owe without an exchange.
Selling? Spread the tax with seller-carry terms
If a large tax bill is what is keeping you from selling, an installment sale may help. When you carry part of the price as a note, the gain is generally reported as you receive payments instead of all in the year of sale. Some parts of the gain, such as certain depreciation recapture, can still be due up front, so run the numbers with your CPA first.
Skyline Capital Investments buys apartment buildings with five or more units and can offer seller-carry terms, or a delayed closing that fits your 1031 timeline. Send the address and unit count and we typically respond within 48 hours. How seller financing works · How an installment sale is taxed · Seller financing calculator.
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