1031 exchange in
New York.

Does New York follow federal 1031 rules?

New York conforms to federal Section 1031 for real property. The procedural complication is Form IT-2663 — non-resident sellers must file before the deed records, either remitting estimated tax of 10.9% of the gain (the highest non-resident rate in the country) or claiming the 1031 exemption by checking box 4B and providing exchange documentation. NYC's separate Real Property Transfer Tax (up to 2.625% on commercial) layers on top.

New York capital gains tax structure

New York taxes capital gains as ordinary income with a top state rate of 10.9% on income over $25M (2026). NYC residents pay an additional 3.876% city rate on top — combined top rate around 14.776%. Long-term capital gains receive no preferential treatment.

NY has a graduated structure topping at 10.9% on income over $25M for state purposes. NYC residents add 3.876% city tax on top — a combined 14.776% top rate, the highest in the country. There is no preferential long-term capital gains rate. Capital gains are reported on the IT-201 (resident) or IT-203 (non-resident) Schedule, with NYC residents also filing the city return. The state real estate transfer tax (RETT) is 0.4% on the consideration, and the additional Mansion Tax adds 1% on residential transactions over $1M (with progressive surcharges in NYC). Estimated payments are due quarterly when liability exceeds $300.

Federal tax treatment of a successful 1031 is deferral of capital gain and unrecaptured Section 1250 depreciation recapture (federally taxed at a maximum 25% when eventually recognized). New York's state treatment sits on top of those federal rates.

Non-resident withholding in New York

NY requires Form IT-2663 (Nonresident Real Property Estimated Income Tax Payment Form) at closing for non-resident sellers. The deed will not record without either proof of payment or an exemption certification. For a 1031 exchange, check box 4B and provide a brief summary of the exchange transaction. The 2026 estimated rate when withholding applies is 10.9% of the gain. Form TP-584.1 (combined real estate transfer tax return) is filed alongside. NYC has its own additional Real Property Transfer Tax (RPT) regime (Form NYC-RPT) — 1.425% on consideration up to $500K and 2.625% on the entire consideration above $500K for commercial Class 4 property.

Common 1031 replacement strategies in New York

NY 1031 strategy splits hard between NYC and the rest of the state. NYC commercial multifamily is its own ecosystem — rent-stabilized inventory, the post-2019 HSTPA tenant-protection regime, and the 2024 expiration-replacement of 421-a with 485-x have all reshaped underwriting. NYC Class A office is in the worst structural shape of any major US market. Long Island multifamily and industrial trade tighter than upstate but with slow growth. Buffalo and Rochester are value-add markets — distressed Class B multifamily and adaptive-reuse industrial trade 7-9% on stabilized product. Albany has the steady state-government tenant base. Most NY-resident 1031 sellers exiting NYC commercial are landing in DSTs, Sun Belt multifamily, or upstate value-add — not back into NYC commercial.

Top New York CRE markets for 1031 buyers

New York City (all boroughs)

Five boroughs, five different markets. Manhattan Class A office is in structural distress — sub-50% physical occupancy in many submarkets, with cap rates wide and uncertain. Brooklyn and Queens multifamily is the deepest 1031 pool — rent-stabilized inventory trades 6-7%, market-rate Class B 5.5-6.5%, with the 2019 HSTPA-driven NOI compression now mostly priced in. The Bronx multifamily 6.5-7.5%. Combined NYC + state transfer tax on commercial >$500K hits 3.025% (2.625% city + 0.4% state) before any Mansion Tax — the highest stack in the country. Hire NYC counsel separately from any upstate or out-of-state attorney.

Long Island

Nassau and Suffolk multifamily and industrial are the institutional product. Class B multifamily 5.75-6.75%, with strong school-district-anchored demand on the North Shore and slower rent growth on the South Shore. Industrial along the LIE and Sunrise Highway corridors trades 5.75-6.75% on stabilized credit-tenant product. Property tax on Long Island is among the highest in the country in absolute dollars — underwrite carefully and plan to appeal.

Buffalo

Distressed-and-value-add upstate market. Class B/C multifamily trades 7.5-9.0% on stabilized product, with adaptive-reuse industrial along the waterfront and downtown trading 7-8.5%. The Buffalo healthcare sector (Roswell Park, Catholic Health) anchors meaningful credit-tenant medical office at tighter caps. Cross-border Canadian buyer demand creates idiosyncratic price discovery on smaller deals.

Rochester

Value-add market with deep B/C multifamily inventory trading 7.5-9.0% and industrial 7.0-8.5%. The University of Rochester and the medical center anchor stable demand; Eastman Kodak's slow exit reshaped industrial inventory over the past two decades, leaving meaningful adaptive-reuse opportunity. Property tax is high relative to rents — underwrite the OpEx line carefully.

Albany

State-government tenant base provides absolute office-demand stability that's rare in secondary markets. NNN retail and small-bay industrial dominate transactional volume; cap rates 7.0-8.0% on stabilized product. Multifamily Class B 7.0-8.0%. SUNY-Albany and the broader Capital Region public sector anchor employment. Steady-yield play, not a growth thesis.

Local counsel, recording, and filing in New York

Hire NYC counsel separately from upstate counsel for any deal that touches the city. The NYC closing is a different practice — RPT filings (Form NYC-RPT), the ACRIS recording system, the cooperative-corporation overlay on residential, and the building-classification (Class 1/2/3/4) implications for transfer tax. Upstate NY closings run through county clerks (62 counties) on the standard TP-584 transfer tax return. NY is an attorney-state for real estate; you will not close commercial without NY counsel.

Recent developments in New York

The 421-a tax abatement program officially expired in 2022 with a vested-project completion deadline now extended to June 15, 2031. Its replacement, 485-x, was enacted in April 2024 as part of the FY 2025 NY State budget. 485-x has higher affordability requirements, stricter construction-wage provisions, and mandates permanent affordability for income-restricted units (versus 421-a's eventual decontrol). Construction on 485-x-eligible projects must begin between June 15, 2022 and June 15, 2034. For NYC multifamily 1031 buyers, the abatement landscape is fundamentally different from pre-2022 — confirm whether any in-place benefit transfers and runs with the property.

Common mistakes in New York 1031 exchanges

• Confusing IT-2663 with TP-584.1. TP-584.1 is the combined real estate transfer tax return — every NY closing files one. IT-2663 is the non-resident seller's estimated income tax form, separate from the transfer tax. A 1031 exemption requires checking box 4B on IT-2663 specifically; checking the wrong box or omitting the form means the deed doesn't record and the closing breaks. Out-of-state attorneys familiar only with the federal 8824 sometimes miss this.
• Forgetting the 2.625% NYC commercial RPT. On any commercial transaction in NYC over $500K, the city Real Property Transfer Tax is 2.625% of the FULL consideration (not just the amount over $500K). Stack the 0.4% state RETT on top and you're at 3.025% transfer tax friction per side of the trade. On a $10M NYC commercial 1031 upleg that's $302,500 in transfer tax alone. The 1031 exchange does not exempt the transfer tax.
• Underwriting NYC multifamily without 485-x diligence. Any NYC multifamily 1031 acquisition involving a building benefiting from 421-a, J-51, or 485-x abatement requires specific diligence: vesting status, remaining term, compliance covenants, affordability obligations, and post-decontrol rent treatment. The 2024 transition from 421-a to 485-x shifted the rules materially — 485-x mandates permanent affordability on income-restricted units. Buyers underwriting off pre-2022 abatement assumptions are mispricing.

What to do if you're starting a New York-source 1031

1. Engage a Qualified Intermediary before the downleg closes. Your QI cannot be a disqualified person (attorney, CPA, or real estate agent who has represented you in the last two years).
2. Confirm state conformance and any clawback or withholding filings with a New York-licensed CPA.
3. Identify replacement property within 45 days in writing, delivered to your QI, under the Three-Property Rule or one of the alternative identification rules.
4. Close on replacement within 180 days of the downleg closing or by your federal tax-return due date (with extensions), whichever is earlier.
5. File Form 8824 with your federal return reporting the exchange. File any required New York state forms for the year, including any clawback or withholding-exemption filings.

FAQ: 1031 exchanges in New York

What is Form IT-2663 and when do I file it for a 1031 exchange?

IT-2663 is the Nonresident Real Property Estimated Income Tax Payment Form. Non-resident sellers must file at or before closing — the deed will not record without it. For a 1031 exchange, check box 4B and provide a summary of the exchange transaction. The current estimated rate when withholding applies (i.e., when the exchange box doesn't apply) is 10.9% of the gain. File the form together with TP-584.1, the combined real estate transfer tax return.

Does the NYC Real Property Transfer Tax apply to a 1031 exchange?

Yes. The 1031 exchange defers federal and state income tax — it does not exempt the NYC RPT, the NY state RETT, or the Mansion Tax. NYC commercial RPT is 1.425% on consideration up to $500K and 2.625% on the entire consideration above $500K. State RETT adds 0.4%. On commercial deals over $500K in NYC, expect roughly 3.025% transfer tax per side of the exchange.

How does the 421-a to 485-x transition affect NYC multifamily 1031 buyers?

421-a expired June 15, 2022, with vested projects' completion deadlines extended to June 15, 2031. 485-x replaced it in 2024 — higher affordability requirements, stricter construction wages, and permanent affordability for income-restricted units. For 1031 buyers, the practical issues are: (1) does the in-place abatement transfer with the building, (2) what's the remaining term, and (3) what compliance obligations run with the property. Confirm in writing with NYC counsel and HPD before closing.

Why do New Yorkers 1031 out of NYC commercial into Sun Belt or DSTs instead of buying back into NYC?

Three reasons. First, NYC's combined transfer tax stack (up to 3.025% on commercial) makes single-asset trades expensive on both legs of a 1031. Second, the post-2019 HSTPA rent regulation regime compressed multifamily NOI and made underwriting harder. Third, NYC office is in structural distress and not a credible 1031 target for most exchangers. DSTs and Sun Belt multifamily offer cleaner yield, lower transaction friction, and no rent-regulation overlay.

Is there a clawback for New York-source gain when I 1031 into out-of-state replacement?

No. NY conforms to federal 1031 and does not have a CA-style clawback. When you eventually sell the out-of-state replacement outside an exchange, NY does not pursue the deferred NY-source gain unless you remain a NY resident at the time of recognition. NY resident sellers owe NY tax on worldwide gain regardless.

Can I close a NYC 1031 with non-NYC counsel?

Practically no. NYC closings run through ACRIS, use the city-specific NYC-RPT form, navigate building classification (Class 1/2/3/4) implications for transfer tax, and (for residential) often involve cooperative-corporation overlays. An attorney without NYC commercial experience will miss procedural deadlines. Hire NYC counsel separately even if you have a long-standing upstate or out-of-state attorney.