New York 1031 Exchange – What Are the Requirements for a 1031 Exchange in NY?

Hi. Marie Flavin with IPX1031. I will be speaking about 1031 exchanges on New York State real estate sales.

Section 1031 is a federal code section. So the major guidelines and time frames do not change whether you’re selling in New York or any of the other states. New York follows the feds allowing the ten thirty one deferral of income taxes on the sale of New York investment or trader business property. So if at the federal level you are reporting a deferral of the capital gain upon the disposition, the same would apply in New York for the income generated on the sale.

New York state taxes the reported income you have at the federal level. If you’re not reporting gain on the sale to the IRS, you are not reporting in New York.

Generally, New York has no state specific requirements for 1031 exchanges with one exception. The exception for non residents who sell real property in New York. Form IT2663 will be required at the closing.

This form reports the non residents real property estimated income tax for the sale. The gain or loss is computed and the seller pays at closing the full amount of estimated tax due. So a potential withholding can occur in a non resident’s New York sale. Good news though, New York recognizes section 1031 tax deferral even for non residents.

At the closing of the non resident sale the seller will fill out IT2663 and claim a 1031 exemption from the withholding.

The exemption for 1031 is discussed on page three of the forms instructions.

The taxpayer will not compute the gain or fill out the second page of the form.

On part three of the form the taxpayer certifies that the seller of the property is a non resident of New York state and is not required to pay estimated tax under New York state tax law section 663 due to one of two reasons, the sale or transfer of the property results in a loss or the seller is not required to recognize gain or loss with respect to the transfer under provisions of the IRS code. So the taxpayer will check box b for the latter exception and fill in taxpayer is conducting the sale as an IRC section 1031 tax deferred exchange.

If you have any questions about this or any other ten thirty one topic, please visit our website or feel free to contact me directly. I’m happy to help.

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