1031 exchanges in New York

What the income tax actually is

New York's top brackets are steep and they were recently extended. The 9.65, 10.30, and 10.90 percent brackets, originally scheduled to sunset after 2027, now run through tax year 2032 under the state budget enacted in 2025.

Three things worth knowing that generic guides miss:

• No capital gains preference. New York starts from federal adjusted gross income and taxes the whole gain at ordinary graduated rates. Depreciation recapture gets no special treatment either.
• New York City has no nonresident income tax. The commuter tax was repealed in 1999. A New Jersey or Connecticut resident selling New York City investment property owes New York State tax on the New York-source gain but no New York City tax. Only city residents pay the 3.876 percent.
• The bracket recapture worksheet. New York claws back the benefit of its lower brackets for high-income filers, so the effective marginal rate over certain phase-in ranges exceeds the nominal bracket rate. A large one-year gain, or a large recognized boot amount, can push you through those ranges. Your CPA will see it; a rule-of-thumb calculation will not.

For a Yonkers resident, add the surcharge: 16.75 percent of your New York State tax, which brings the effective state-plus-Yonkers top rate to roughly 12.73 percent.

Transfer taxes, the part a 1031 never defers

This is the New York-specific trap, and it is a large one because the rates are high and there is no relief.

Section 1405 of the Tax Law lists every exemption from the state transfer tax, and a like-kind exchange is not one of them. The exemptions cover governmental grantees, security for debt, corrective deeds, gifts, tax sales, mere changes of identity or form, partition, and bankruptcy. Nothing for Section 1031. The New York City RPTT exemption list is similarly limited.

One narrow exception, for reverse exchanges. A 2016 New York State advisory opinion concluded that the conveyance of replacement property from an exchange accommodation titleholder to the exchanger in a reverse exchange is exempt from the state transfer tax, because the titleholder acts as agent or nominee and no consideration passes. Do not overstate it: the titleholder's initial acquisition from the third-party seller is a conveyance for consideration and is fully taxable. The ruling prevents double transfer tax in a reverse structure, not transfer tax generally. Whether New York City takes the same view on the RPTT side is not something we could confirm from a published city ruling, so treat it as a question for counsel.

In a standard forward exchange, direct deeding — the property going straight from you to your buyer with the intermediary in the contract chain rather than in title — is the practice that avoids a second taxable conveyance. That is standard practice, not a statutory exemption.

Form IT-2663 and nonresident withholding

Nonresident individuals, estates, and trusts selling New York real property must file Form IT-2663 and pay estimated tax on the gain. The form goes to the county recording officer when the deed is presented, and the county will not record the deed without either payment or a valid certification. The 2026 worksheet applies a flat 10.90 percent to the estimated gain.

For a fully deferred exchange, the instructions are explicit. Mark box 4B in Part 3, certifying that no gain or loss is recognized under Section 1031, give a brief summary of the exchange, and indicate that it is a Section 1031 like-kind exchange. Part 2 is skipped and no payment is made.

A companion form, IT-2664, applies to nonresident sales of co-op shares. Note that its exemption discussion does not name Section 1031 as explicitly as IT-2663 does.

The good news: no clawback

New York has no clawback statute and no annual tracking form. There is no New York equivalent of California's FTB 3840 or Oregon's OR-24. Exchange New York property into Texas and New York does not follow the deferred gain with a perpetual filing obligation.

Two caveats keep this honest.

• If you are still a New York resident when you eventually sell, New York taxes worldwide income, so the deferred gain comes back into the New York base regardless. The absence of a clawback only helps someone who is a nonresident at the time of the eventual disposition.
• No clawback is not no scrutiny. New York audits like-kind exchanges aggressively, applying federal guidance and case law, and pays particular attention to refinancings around the exchange that can produce disguised boot.

Still, for an owner planning to leave the state, this is a genuine structural advantage over California, and it is worth weighing.

Co-op apartments

A distinctly New York question: can shares in a housing cooperative be exchanged under Section 1031?

Technically yes. The characterization of property as real or personal turns on state law, and New York law treats co-op interests much like real property for a range of purposes. The IRS has concluded in several private letter rulings that interests in New York cooperative apartments are like-kind to improved and unimproved real property.

Four caveats before anyone acts on that:

• Private letter rulings bind only the taxpayers who requested them. They are not precedent.
• The analysis is New York-specific and does not travel to co-ops in other states.
• The unit must still be held for investment or business use, which most owner-occupied co-ops fail outright.
• The practical obstacles are large. The board must approve both the buyer and the structure, lender consent is harder on a share transfer than a deed, and intermediaries handle share transfers far less routinely.

Treat this as eligible in principle and difficult in practice. It calls for specialist counsel, not a general checklist. Note also that co-op transfers are separately caught by the state transfer tax, the city RPTT, and the mansion tax.

Why the Opportunity Zone alternative is worse in New York

When we compare your six options, a Qualified Opportunity Zone fund is one of them. In New York it is a materially weaker option than it looks federally.

New York decoupled from the federal Opportunity Zone provisions beginning with the 2021 state budget, requiring an addback of the deferred gain. So the QOZ deferral works for federal purposes but not for New York State or New York City. You would be deferring roughly 24 percent federally while paying 14.776 percent to New York in the same year.

By contrast, a 1031 exchange defers the New York tax fully, because New York conforms to Section 1031 without any addback. For a New York owner, that difference alone usually settles the comparison.

Your New York checklist

• Price the transfer taxes into the decision. They are not deferred, they apply on both legs, and in New York City they can exceed 3 percent of the price.
• Nonresidents: prepare Form IT-2663 with box 4B before the deed goes to the recording officer, or the deed will not record.
• Partial exchanges: settle the IT-2663 boot treatment with your CPA and intermediary in advance.
• Use direct deeding in a forward exchange so the intermediary never takes title and no second conveyance is created.
• Vet your intermediary yourself. New York imposes no bonding, insurance, or segregation requirements at all.
• Watch personal property allocations. Section 1031 is real property only. Furniture in a furnished unit or FF&E in a hotel or restaurant property is boot.
• If you plan to leave New York, note that the absence of a clawback makes the timing of your residency change genuinely consequential. Talk to counsel.