What Taxes and Costs Does a Seller Pay?

“If I sell for $1.5 million, how much will I actually take home?” That is every seller’s first question. In New York, a seller’s costs fall into three groups: transfer taxes and fees at closing, capital gains tax afterward, and paying off the mortgage. The earlier you work out the numbers, the better you can price the home and decide whether a 1031 exchange makes sense.

1. Transfer Taxes (Paid at Closing)

In New York, the State and New York City transfer taxes are customarily paid by the seller (this is negotiable, and new development sponsors often shift them to the buyer).

New York State Real Estate Transfer Tax (RETT)

New York City Real Property Transfer Tax (NYC RPT)

Note: in New York City, a building with four or more units is taxed as “other property,” at up to 2.625%. Selling a four-family house or small apartment building costs noticeably more in transfer tax than selling a three-family.

Outside New York City, some cities (such as Yonkers and Mount Vernon) impose their own transfer taxes, and the Peconic Bay region on the East End of Long Island has a local transfer tax that is usually paid by the buyer.

Examples (New York City):

Also: the “mansion tax” is paid by the buyer. It applies to residential purchases of $1 million or more: 1% statewide, and in New York City on a sliding scale from 1% to 3.9%.

2. Other Closing Costs

• Broker commission. Negotiable. Since 2024, industry practice on who pays the buyer’s broker has changed, so spell it out in the listing agreement and the contract;
• Attorney fees;
• Mortgage payoff, including accrued interest and fees for recording the satisfaction;
• Co-ops: the flip tax (set by the building and usually paid by the seller), stock transfer fees, managing agent fees, move-out deposits and so on;
• Condos: managing agent fees and the application fee for the right of first refusal waiver;
• Adjustments: property taxes, condo common charges or co-op maintenance, and water charges, apportioned as of the closing date;
• Costs of clearing title, such as old liens or violation fines;
• Nonresident sellers: New York State nonresident estimated tax (IT-2663), and for foreign sellers, federal FIRPTA withholding (see Part 4).

3. Capital Gains Tax (Paid When You File)

Profit on the sale (the price minus your cost basis and selling expenses) is subject to capital gains tax.

Federal

• For property held more than one year, long-term capital gains rates of 0%, 15% or 20%;
• An additional 3.8% net investment income tax (NIIT) for higher-income taxpayers;
• Depreciation taken on a rental is “recaptured” at up to 25%.

New York

• New York State taxes capital gains as ordinary income, at rates up to 10.9%;
• New York City residents also pay city income tax, at rates up to 3.876%.

Added together, a New York City resident selling an investment property may owe close to, or more than, a third of the profit in tax.

Your Home: The $250,000 / $500,000 Exclusion

Under Section 121 of the Internal Revenue Code, when you sell your principal residence, you may exclude up to $250,000 of gain if single, or $500,000 if married filing jointly, if:

• You owned and lived in the home for at least two of the five years before the sale (not necessarily consecutive);
• You haven’t used the exclusion in the past two years;
• If you sell early because of a job change, health or certain other reasons, a partial exclusion may be available;
• Depreciation taken during any rental period cannot be excluded.

New York State and City income taxes generally follow this federal rule.

Rental and investment properties don’t qualify for Section 121, but a 1031 exchange may defer the tax (see the “Selling With a 1031 Exchange” series).

Attorney’s Insight

A seller’s taxes and costs should be worked out before signing, not a week before closing when the settlement statement arrives. Our advice:

• Calculate your net proceeds before you set the price. List transfer taxes, commission, mortgage payoff and any flip tax so you know where you stand;
• Keep receipts for improvements. Capital improvements such as a new roof, an addition or a new kitchen increase your basis and reduce taxable gain. Ordinary repairs do not;
• For investment property, decide on a 1031 exchange first. The exchange must be set up before closing. Once the proceeds reach your hands, it is too late;
• Watch the timing on a former home. For example, if you move out and rent the home, selling within three years of moving out may still satisfy the “two of the last five years” test. Planning ahead can save a substantial amount of tax.

Attorney’s perspective

Before you sign, we estimate the taxes and costs at closing so you know what you will actually receive. If it is an investment property and you plan to reinvest, consider a 1031 exchange.

For advice about your own situation, call +1 718-218-5805 or schedule a consultation. We meet clients in Flushing and Manhattan, in English or Chinese.

Series overview

This article is for general information only and is not legal advice. Reading it does not create an attorney-client relationship. For advice about your situation, please contact us.

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