Capital gains tax on sale of home in New York: what applies

Capital gains on a home sale is a calculation with a handful of inputs: what you sold for, what you paid, what you spent on improvements and selling, and whether the exclusion covers the result. A long-time owner of a New York home may have large gain on paper, so it is worth understanding before a listing rather than at tax time.

New York Downsizing is not a tax adviser, a law firm or a brokerage, and nothing here is tax, legal or financial advice. Introductions from this site go to agents on the operating team at eXp Realty, so they are not a search of the whole market. Tax rates and thresholds change, so this guide states the rules and does not list rates. Take your numbers to a New York CPA.

Capital gains tax on a primary residence in New York

A capital gain is the difference between what you receive and your basis. When the home is your main home, the federal Section 121 exclusion can remove much of it. The IRS describes the rule in Topic 701, Sale of your home, and the full detail is in Publication 523.

Sellers in New York also pay transfer taxes at closing. Those are a different bucket from capital gains. The net proceeds calculator estimates state and city transfer taxes, and the net proceeds guide explains the line items.

The Section 121 exclusion: the two tests

According to IRS Topic 701, you may exclude up to $250,000 of gain, or up to $500,000 if you file a joint return with your spouse, when you meet these conditions:

• Ownership: you owned the home for at least 24 months (two years) out of the last five years before the sale.
• Use: you used it as your residence for at least 24 months of those five years.
• Timing: you must meet both tests during the five-year period ending on the sale date.
• Frequency: you cannot have excluded gain from the sale of another home during the two years before this sale.

For a joint return, either spouse can meet the ownership test but both must meet the use test. Publication 523 covers partial years and exceptions, including a surviving spouse who sells within two years of a spouse's death. Those cases turn on facts, which is another reason to ask a CPA.

Even when all of the gain is excludable, the IRS says you must report the sale if you receive a Form 1099-S. Sales are reported on Form 8949 and Schedule D.

Cost basis and improvements: figuring your gain

Publication 523 has you subtract your adjusted basis from the amount you realize to find the gain. For a purchased home, basis is generally the purchase price plus certain settlement and closing costs and the cost of improvements. The publication's worksheets are the place to start.

Usually adds to basis (improvements)	Usually does not (repairs)
An addition or a new bedroom	Painting a room
A new roof	Fixing a leak
New heating or cooling systems	Replacing a broken hardware item
A remodel that adds value or extends the home's life	Routine upkeep

The publication says that when repairs are part of an extensive remodeling, the entire job can count as an improvement. It also says a loss on the sale of a personal home is not deductible. In a co-op, the equivalent of the home is your stock and lease, so ask your CPA how your building's assessments and capital contributions are treated.

1. Find your closing statement from when you bought.
2. List every capital improvement with the date and cost, and gather receipts.
3. Estimate your expected selling costs with the calculator and costs and money.
4. Compare the likely gain to $250,000 or $500,000.
5. Take the result to a CPA before listing.

NYS and NYC income tax on gains

New York State income tax is based on your federal return. The IT-201 instructions say the calculation of your state income tax is based on the information you reported federally, including your income and federal adjustments. In practice, gain you exclude under Section 121 is not reported as income, and gain that is not excluded flows into your federal adjusted gross income, which is the starting point for your New York return.

New York City residents also compute New York City resident tax on the same IT-201. The instructions use a days test, in part: if you maintained living quarters in the city and spent 184 days or more there, you may be a resident for city purposes. Ask a New York tax preparer whether you count as a city resident for the year of sale.

New York also has a pension and annuity exclusion for people 59 and a half or older, described on the state's information for seniors page, up to $20,000 per person of qualified income. It applies to pension and annuity income, not to a home sale. Rates are not listed here, and you can find current ones on tax.ny.gov or from a preparer.

Timing, moving out and keeping records

Because both tests look back over the five years ending on the sale date, moving out does not automatically end your eligibility. Someone who lived in the home for at least 24 months of the last five years and owned it for the same stretch can still meet both tests after leaving. Past that window the exclusion is lost, so the timing of a listing matters. If you plan to move first and sell later, count the months and ask a CPA to confirm.

The frequency rule also matters for a couple who has sold before. If you excluded gain from another home sale during the two years before this sale, the IRS says you are not eligible. And on a joint return both spouses must meet the use test, so a recent marriage or a spouse who lived elsewhere can change the answer.

Records are the practical part. Keep your purchase closing statement, a dated list of improvements with receipts, and the closing statement from the sale. If a Form 1099-S arrives, its gross proceeds appear in box 2 according to Publication 523, and the figures on it should match your records. Large gaps between what you remember and what the paper shows are the usual source of trouble at filing time.

None of this replaces a return prepared from your actual documents. Bring the closing statements, the improvement list and any 1099-S to the preparer, and say plainly how long you lived in the home and when you moved out, since the preparer will ask. If the home was ever rented or partly used for business, say so too, because that can change the result.

Nonresident sellers and Form IT-2663

If you move away before the sale and are a nonresident when you sell, New York asks for estimated tax up front. The instructions for Form IT-2663 say nonresident individuals, estates and trusts must estimate New York personal income tax on gain from selling certain New York real property, and pay it when the deed is recorded.

• Principal residence exemption. A nonresident does not have to file if the property qualifies in total as the seller's principal residence under Section 121, even when the gain exceeds the exclusion. You claim it on the transfer tax form.
• Mixed use. If only part of the property qualifies, estimated tax applies to the gain on the part that does not.
• Co-op stock. Nonresident co-op sales use Form IT-2664, not IT-2663.
• Residents. Residents at the time of sale are not subject to it.
• Form year. The 2026 form applies to transfers after December 31, 2025 and before January 1, 2027. You may still need to file a New York return.

Retirees moving from New York to another state, such as readers of moving from NYC to Florida, should time the sale and the move with a CPA, because residency on the closing date matters.

Inherited homes, gifts and special cases

• Inherited home. Publication 523 says your basis is the fair market value on the date of death, or the later alternate valuation date. See selling a parent's house.
• Surviving spouse. The publication says the basis of the interest your spouse owned changes to its fair market value on the date of death. A surviving spouse may use the $500,000 amount within two years of death if the other requirements are met.
• Co-op or condo. Whether your home is a house or an apartment, ask your CPA how the tests apply. Building charges at sale, such as a flip tax, are a separate subject (see flip tax in NYC).
• Transfer taxes. Different from income tax. See NYC transfer tax and mansion tax.

Questions to ask before you list

A short list for your CPA and your attorney keeps the tax from surprising you at closing.

• Do I meet the ownership and use tests on my expected closing date?
• What is my basis after improvements, and where are the records?
• Is any part of my gain above the exclusion limit?
• Am I a New York State or New York City resident for the year of sale?
• If I move out of state first, does IT-2663 apply?
• Will the sale affect other items, such as the senior exemptions described in New York senior property tax exemptions?

If you are also planning where to go next, see where to downsize and buy first or sell first, and the resources page for professional referral services. When you are ready to talk with an agent, you can ask to be introduced to one on the eXp Realty operating team.