Clients often ask me about the tax consequences they will face when they sell their New York City home. Whether you’re selling a one or two family house, a cooperative apartment or a condominium unit, you will be subject to several taxes.
First, there are transfer taxes that must be paid at the closing of the sale. New York State imposes a transfer tax of four dollars per thousand or .4% of the sales price of the home. New York City imposes its own transfer tax, starting at 1% of the sales price for sales under $500,000.00 and increasing to 1.425% for sales above $500,000.00.
Second, there may be capital gains taxes that may be due when you file your Federal and New York State income taxes for the tax year in which your home was sold. If your home was your principal residence for two of the five years prior to the sale, you are entitled to a credit of $250,000.00 ($500,000.00 if a married couple are joint owners of the home) against any capital gains.
Capital gain is determined by subtracting your cost basis (generally your original purchase price as adjusted, i.e., by adding cost of capital improvements and closing costs) from your sale price. If you have inherited your home, you will be entitled to a “step up” in cost basis equal to the fair market value of the home at the time of the death of the prior owner from whom you received the home.
There is an exception as to when income taxes (based on any gain from the sale of your home) are due if you are a non-resident of New York State selling a New York home. In that case you must file a Non-Resident Real Property Estimated Income Tax Payment Form (Form IT-2663) and pay any estimated New York State income tax at the time of closing.
Finally, if your home ceased being your principal residence for 2 of the past 5 years prior to closing, you can defer the payment of gains tax if you purchase replacement property through the use of a 1031 exchange.
Tax laws are complex. When you sell your home, be sure to employ professionals familiar with the sale of New York City property to avoid being surprised by an unexpected tax bill.