Do I have to pay capital gains tax when I sell my home in NYC?

In most cases, no — if it was your primary residence. Federal law lets you exclude up to $250,000 of gain if you file as a single taxpayer, or up to $500,000 if you are married filing jointly, as long as you owned and lived in the home for at least two of the five years before the sale.

Capital gains tax applies to your profit, not your sale price. If your gain after the exclusion is zero, you owe no federal capital gains tax and, in most cases, nothing to New York State or New York City either. The tax matters most for long-held homes that have appreciated past the exclusion, for investment and rental property, and for sellers who have moved out of state before closing.

How much gain can I exclude, and how do I qualify?

The federal home-sale exclusion (Section 121) is $250,000 of gain for single filers and $500,000 for married couples filing jointly.

To claim it you must pass two tests in the five years ending on the date of sale:

• Ownership test — you owned the home for at least 24 months.
• Use test — you lived in it as your main home for at least 24 months. The two years do not have to be continuous.

You generally cannot use the exclusion more than once every two years. A partial exclusion may still apply if you sold early for a qualifying reason such as a job relocation, a health issue, or another unforeseen circumstance. These thresholds have not changed in 2026 and are not adjusted for inflation, so on a long-held NYC home the exclusion can cover less of the gain than it once did.

How is the taxable gain actually calculated?

Your gain is the sale price, minus your selling costs, minus your adjusted cost basis — and only the amount left after the exclusion is taxed.

Adjusted cost basis is what you paid for the home plus the cost of capital improvements (a renovation, an addition, a new roof), minus any depreciation you previously claimed. Selling costs that reduce the gain include broker commission, attorney fees, and the transfer taxes paid at closing. Keeping records of every improvement over the years is the single biggest lever a seller controls, because each dollar of documented basis is a dollar less of taxable gain.

The transfer taxes, mansion tax, and other closing costs that feed into this calculation are covered in detail in the companion guide, what it costs to sell a house in NYC, which includes an interactive net-proceeds calculator.

What are the 2026 federal capital gains tax rates?

For a home held more than one year, the taxable gain is taxed at the long-term federal rate of 0%, 15%, or 20%, depending on your total taxable income and filing status.

Higher earners may also owe the 3.8% Net Investment Income Tax on the taxable gain once modified adjusted gross income passes $200,000 for single filers or $250,000 for married couples — thresholds that are frozen and not indexed to inflation. That brings the top federal rate on a large taxable gain to 23.8%. A home sold one year or less after purchase is a short-term gain, taxed at ordinary federal rates up to 37%.

How do New York State and New York City tax the gain?

New York does not have a separate capital gains rate — the taxable gain is added to your ordinary income and taxed at New York State's graduated rates, roughly 4% up to 10.9%, and New York City residents pay city income tax of up to about 3.88% on top.

Two consequences follow. First, the long-term federal advantage does not exist at the state and city level: New York taxes the gain the same whether you held the home one year or twenty. Second, because state and city tax stack on top of federal, a NYC seller with a large taxable gain can face a combined marginal rate well into the double digits. The exact figure depends on how the gain sits on top of your other income for the year — which is why timing a sale, and knowing your basis, matters.

I'm selling a NYC home but now live out of state — what is Form IT-2663?

If you are not a New York resident when the sale closes, New York requires you to file Form IT-2663 at closing and prepay estimated tax — for 2026, equal to 10.9% of the gain.

This is not an extra tax. It is a prepayment, collected through your closing attorney, that gets credited against your actual New York tax when you file a nonresident return the following year; if your real rate is lower, you are refunded the difference. New York collects at the top rate up front because an out-of-state seller is harder to pursue later. Resident sellers do not file IT-2663 — they pay through normal estimated tax or withholding. A common and costly myth is that moving to Florida or another no-tax state before closing escapes New York tax on a New York property. It does not.

What about an inherited home, a rental, or a multi-family I lived in?

These three situations follow different rules, and each is where sellers most often miscalculate.

• Inherited home — the basis is generally "stepped up" to the home's fair market value on the date the previous owner died, not the original purchase price. That often eliminates most or all of the taxable gain if you sell soon after inheriting.
• Rental or investment property — the Section 121 exclusion does not apply because it was not your primary residence. Sellers often defer the tax with a 1031 like-kind exchange into another investment property, which has strict deadlines.
• Multi-family you partly lived in — common in NYC two- and three-family homes. The exclusion can shield the gain on the portion you lived in, while the rented portion is taxed. Any depreciation you claimed on the rental side is "recaptured" and taxed at up to 25%, and is never covered by the exclusion.

How can I legally reduce the tax on my sale?

The main levers are qualifying for the full exclusion, documenting every improvement to raise your basis, and timing the sale around your income and the two-year ownership-and-use window.

For a primary residence, making sure you meet the 24-month tests before selling can be the difference between a fully excluded gain and a taxable one. Tracking capital improvements over the years directly lowers the taxable gain. For investment property, a 1031 exchange or an installment sale can defer tax. The specifics turn on your filing status, your other income, and your records — a CPA or tax attorney should confirm your numbers before you commit to a closing date.