1031 Exchange & DST Investing in New York
New York taxes top capital gains at 10.9% and conforms to federal Section 1031, so a qualifying exchange defers a heavy combined tax load. Nonresident sellers must file Form IT-2663 and pay estimated tax at closing.
State tax treatment of a 1031 exchange
New York conforms to federal Section 1031, so a qualifying like-kind exchange defers New York income tax on the gain. Capital gains are taxed as ordinary income, with a top marginal rate of 10.9% at the highest income levels; New York City residents also face additional city income tax.
Nonresident sellers of New York real property must generally file Form IT-2663 and remit estimated tax at closing, calculated on the gain at the highest applicable rate. A qualifying exchange can reduce or eliminate the estimated payment where nonrecognition applies. New York does not impose a separate clawback on deferred gain.
Market snapshot
New York City's five boroughs anchor the state's investment market, led by a vast multifamily stock, though rent-stabilized owners have faced headwinds since the 2019 rent law reforms. Manhattan office and mixed-use assets remain significant, and outer-borough and Hudson Valley multifamily continue to attract investors.
Upstate metros such as Buffalo, Rochester, and Albany offer higher-yield multifamily and industrial opportunities. Aging New York City landlords with large embedded gains are a major source of 1031 replacement capital seeking passive, out-of-state alternatives.
Why 1031 & DST investors look here
- A 10.9% top state rate, plus New York City tax and federal capital gains tax, creates one of the heaviest exit-tax burdens in the country
- Rent-stabilization pressures lead many New York City multifamily owners to seek passive alternatives
- DST and 721 structures let owners diversify out of a single concentrated building and simplify estate planning
Replacement-property options
New York exchanges do not require in-state replacement property, which is a key draw for owners looking to leave a high-tax, high-regulation market. Accredited investors commonly identify DST interests, 721 UPREIT contributions, or Opportunity Zone investments in other states, trading a hands-on New York building for diversified, professionally managed real estate. These vehicles are illiquid, involve market and sponsor risk, and are available only to accredited investors.
Frequently asked questions
Does New York tax a 1031 exchange?
No. New York conforms to federal Section 1031, so a qualifying like-kind exchange defers New York State (and New York City, where applicable) income tax on the gain along with the federal tax.
Can I exchange New York property for out-of-state DSTs?
Yes. Section 1031 does not require in-state replacement property, so a New York property can be exchanged into DST interests holding real estate anywhere in the U.S., subject to accredited-investor eligibility.
What is Form IT-2663 and how does it affect my exchange?
Form IT-2663 is New York's estimated income tax form for nonresident sellers of real property, with tax due at closing. A qualifying 1031 exchange can reduce or eliminate the estimated payment where the gain is not recognized.
Gerald F. “Jerry” Baker, III — Founder & Managing Principal, Baker 1031 Investments · FINRA Series 22 / 63 · SIE. Read full bio →
State tax treatment is general and changes frequently; this page is educational and is not tax, legal, or investment advice. Confirm current state and local rules with your own CPA and attorney. Securities offered through Aurora Securities, member FINRA/SIPC. Real estate investments involve risk, including possible loss of principal.