New York capital gains tax (2026): selling a business, real estate or farm

Benefit recapture: why a big New York gain is taxed at a flat top rate

New York takes back the benefit of its low brackets. Once New York adjusted gross income (NYAGI) passes $107,650, the 2026 tax computation worksheets in the IT-2105 instructions start recapturing the lower brackets, and at higher incomes the whole of taxable income is taxed at the rate of the top bracket you reach: 9.65% for taxable income above $2,155,350 up to $5,000,000, 10.3% from $5,000,000 to $25,000,000, and 10.9% above $25,000,000 (joint filers, 2026).

The practical consequence: when a sale pushes NYAGI above $25 million, New York taxes all of that year's taxable income, not just the excess, at 10.9% (2026 worksheet for NYAGI over $25,000,000). A $4 million gain in the worked example produces $396,364 of New York tax, an effective state layer of roughly a tenth of the gain.

New York City adds a second income tax

Residents of the five boroughs pay New York City personal income tax on the same income, gain included. For 2026 the joint schedule tops out at 3.876% on taxable income over $90,000 (NYC rate table in the 2026 IT-2105 instructions). Combined with the state, a city resident's gain faces a state and city layer near 14.8% before federal tax. The worked example leaves NYC out, so a Manhattan seller should add the city tax to $1,247,711.

The city tax follows residence, not the location of the asset. A Brooklyn resident selling a building in New Jersey still owes NYC tax on it; a Westchester resident selling a Manhattan building owes the state tax as a nonresident but no NYC resident tax.

Selling New York real estate as a nonresident: Form IT-2663 at the closing table

A nonresident individual, estate or trust selling New York real property must pay estimated income tax before the deed can be recorded. Form IT-2663 computes it as the gain times 10.90% for 2026 (Form IT-2663, line 19), and the county recording officer will not record a deed without either that payment or a signed exemption on Form TP-584 (IT-2663 instructions, 2026).

• A sale that qualifies in full as a Section 121 principal residence is exempt from the estimated payment (Tax Law 663(c)(1), cited in the 2026 instructions).
• On an installment sale reported on federal Form 6252, the IT-2663 payment covers only the gain reported for 2026; later payments are covered by quarterly IT-2105 vouchers.

Because the payment uses the 10.9% top rate regardless of your real bracket, a nonresident with a modest gain often overpays at closing and waits for a refund.

Tax Law 639: your installment note does not leave New York when you do

When a resident becomes a nonresident, Tax Law 639(a) requires the part-year return to accrue items that would be income under the accrual method, and the IT-260 instructions list unrealized installment sale income first among the examples. The deferred gain on a note received while you lived here is pulled onto your final resident return.

The escape valve is Tax Law 639(d): file a surety bond (Form IT-260) or acceptable collateral (Form IT-260.1) equal to at least the extra tax, and you report each payment on future nonresident returns as it arrives. Collateral in the form of bonds must be worth at least 1.5 times the deferred tax (IT-260 instructions). A former NYC resident files the same accrual for city tax. Our residency-change analysis covers the sequencing, and the installment sale page covers the note itself.

Transfer taxes on a New York real estate sale

Separate from income tax, the state real estate transfer tax is $2 for each $500 of consideration, paid by the seller (NY DTF transfer tax guidance, 2026). Additional layers apply by price and location:

• Mansion tax: 1% of the price on residential property of $1 million or more, paid by the buyer (NY DTF, 2026).
• NYC additional base tax: another $1.25 per $500 on residential conveyances of $3 million or more and on other property of $2 million or more, paid by the seller (since July 1, 2019).
• NYC supplemental tax on residential sales of $2 million or more: 0.25% to 2.9% by price, paid by the buyer (Form TP-584-NYC rates, 2019 law).

The city's own real property transfer tax applies on top, and transfer tax paid by the seller reduces the amount realized.

Where New York departs from federal rules

New York starts from federal AGI but makes modifications that change the gain on a sale:

• Bonus depreciation. New York has not followed IRC 168(k) for property placed in service since June 1, 2003 (except resurgence zone and Liberty Zone property). You add back federal bonus depreciation (modification A-209) and claim New York depreciation instead; in the year you sell, a disposition adjustment (S-214, Form IT-398) reconciles the two bases (IT-225 instructions). Equipment-heavy sellers often have a smaller New York gain than federal.
• Opportunity Zones. Gain you defer federally by investing in a qualified opportunity fund is added back on the New York return (modification A-221), so the Opportunity Zone deferral does not defer New York tax; S-218 handles the later federal inclusion.
• Losses. New York follows the federal capital loss netting and carryover, so a banked loss works here (see loss carryovers).

Spreading the gain, and the 2026 estate tax cliff

Because the rate jumps with NYAGI, timing matters more in New York than in a flat-rate state. In the five-year note example the New York tax drops to $286,067, which is $110,297 less than the lump sum, while federal tax falls as well. That only holds if you stay a resident through the payments or post the Tax Law 639 bond if you leave.

Estate planning has its own trap. The New York basic exclusion is $7,350,000 for deaths in 2026 (NY DTF estate tax page), but the credit phases out between 100% and 105% of that amount and is zero above it (ET-706 instructions, line 3 worksheet), so a taxable estate just over $7,717,500 pays tax on the whole estate. Sale proceeds sitting in cash can push an estate over the cliff where an illiquid business might have been valued lower; see holding for a step-up.

Federally, long-term gain is taxed at 0%, 15% or 20%, with 20% applying above $613,700 of joint taxable income (Rev. Proc. 2025-32, 2026); the capital gains guide covers that layer, and capital gains tax by state compares New York with its neighbors. To see these numbers for your own deal, get the Big Sale Tax Analysis.

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