The New York Seller’s Complete Tax Guide: What You Owe at Closing and Beyond

Taxes are one of the most significant financial components of a home sale in New York – and one of the most frequently misunderstood. Sellers often know about the transfer tax because it appears on the closing statement, but don't fully understand the income tax implications of their gain, or they conflate the two into an undifferentiated anxiety about "what they owe the government."

Here is a clear, organized guide to every tax category a New York home seller needs to understand.

At-Closing Taxes: What You Pay on Closing Day

New York State Transfer Tax: As covered in the dedicated transfer tax post, this is 0.8% of the sale price, paid by the seller at closing. It is calculated, deducted from your proceeds, and remitted by the closing agent – you don't have to write a check separately. On a $700,000 sale, this is $5,600.

Additional Transfer Tax for High-Value Properties: Sales at $3 million and above are subject to an additional "mansion tax" surcharge on the seller's side. Confirm the applicable rate with your attorney if your sale approaches this threshold.

New York City RPTT (for NYC properties): For properties within the five boroughs, the NYC Real Property Transfer Tax is an additional seller-paid tax. 1% for transactions under $500,000; 1.425% for transactions at or above $500,000 for residential properties.

These are the taxes that appear on your closing statement. They are final at closing – no additional filing required for these specific items.

Post-Closing Taxes: What You Report on Your Tax Return

Federal Capital Gains Tax:

When you sell a home for more than your adjusted basis (purchase price plus acquisition costs plus capital improvements), you have a capital gain. For primary residences:

If you've owned and used the home as your primary residence for at least two of the past five years, you may exclude up to $250,000 of gain (single filers) or $500,000 (married filing jointly) from federal capital gains tax. This exclusion is applied when you file your federal tax return for the year of the sale.

Gain above the exclusion amount is taxed at long-term capital gains rates (0%, 15%, or 20% depending on your income) if you've owned the property for more than one year. Short-term gains (property held one year or less) are taxed at ordinary income rates.

New York State Income Tax on the Gain:

New York State does not provide a preferential rate for long-term capital gains – gains are taxed as ordinary income at New York State rates, which range up to approximately 10.9% for high earners. The federal exclusion amount ($250,000/$500,000) is also deductible for New York State purposes, so the same gain that is excluded federally is also excluded at the state level.

For New York City residents, the city income tax (up to approximately 3.876%) also applies to capital gains.

Reporting Requirements:

You must report the sale on your federal and state tax returns even if your gain is fully excluded. IRS Form 1099-S is issued by the closing agent reporting the sale proceeds; Form 8949 and Schedule D are used to report the gain and claim the exclusion.

The Adjusted Basis Calculation: Getting It Right Matters

Your taxable gain is the difference between your net sale proceeds and your adjusted basis. Getting the basis calculation right can meaningfully reduce your taxable gain.

Your adjusted basis starts with your purchase price, then adds:

Acquisition costs at purchase (certain closing costs are added to basis). Capital improvements made during ownership (renovations, additions, significant system replacements). Costs of sale-related improvements made before closing that aren't deducted elsewhere.

It subtracts: Depreciation claimed if the property was ever used as a rental (this reduces basis and is recaptured at sale).

For homeowners who've owned for many years and have records of improvements, the difference between calculating basis correctly and calculating it only from the purchase price can be $20,000 to $100,000 or more – directly reducing taxable gain by that amount.

Keep records of significant improvements. Contractor invoices, permits, and payment records all support the basis calculation.

Non-Resident Seller Withholding

For sellers who are not New York State residents at the time of sale, New York requires withholding of a portion of the sale proceeds at closing – to ensure the state collects any applicable income taxes from sellers who may not otherwise file a New York return. The withholding rate is 8.82% of the gain.

Non-resident sellers can apply to reduce the withholding if their actual tax liability is lower. File Form IT-2663 (for individuals) before closing to request reduced withholding. This requires calculating the estimated gain and applying New York State tax rates.

Work with a CPA who specializes in New York real estate transactions before you close – particularly if your gain is significant, if you're a non-resident, or if the property was ever used for rental or business purposes. The tax implications of a large home sale are too consequential to navigate without professional guidance. Call me at (321) 447-4259 or visit movewithricky.com.

Rakesh (Ricky) Khanna | Licensed Real Estate Salesperson
Better Homes and Gardens Real Estate Realty Connect
Call or text: (321) 447-4259 | movewithricky.com