If the house was your primary residence, you can often keep most or all of your profit tax free. Under federal law (IRC §121) you can exclude up to $250,000 of gain if you file single, or $500,000 married filing jointly, as long as you owned and lived in the home as your main home for at least 2 of the last 5 years. New York has no separate capital gains rate: whatever gain is left after that federal exclusion gets taxed as ordinary income (Tax Law §601). If you live in Nassau County or Suffolk County, you pay federal and New York State tax only, with no New York City income tax on the sale.
I am Mike Plactere. I buy houses directly across Long Island, and I am also a licensed CPA, so I spend a lot of time on the number that actually matters to a seller: what you walk away with after the sale is done. This post is general education, not advice on your specific return. Your own gain depends on your basis and your situation, so run your real numbers with your own CPA. But here is how the pieces fit together so you are not scared off by the wrong rate.
One Google reviewer, Paul, put it this way: "Mike is able to explain in layman terms where the real estate market has been and where it['s] heading. His real estate tax knowledge as a CPA has helped my retirement strategy..." That is the lens I am writing from here.
The three tax rates you keep hearing, and which ones are real
Search "capital gains tax New York" and you will run into three different numbers, usually at the same time:
- 15% (a federal long-term capital gains bracket).
- 10.90% (the top New York State income tax rate).
- 1% (the "mansion tax").
Here is the problem. Those three numbers measure three different things, and for a Massapequa or Levittown homeowner selling a primary residence, none of them may be your actual bill. The 15% is federal only. The 10.90% is a top New York rate that applies to very high incomes, not to most home sales. The 1% mansion tax is not a capital gains tax at all: it is a tax on the sale price, and it usually falls on the buyer, not you.
So separate two systems in your head before you do anything else.
Two separate tax systems: profit vs price
When you sell, two completely different kinds of tax can show up, and mixing them is where sellers get scared for no reason.
1. Income tax on your profit (the gain). This is federal capital gains tax plus New York State income tax on whatever gain you cannot exclude. This is where IRC §121 does its work.
2. Transfer taxes on the sale price. These are the state transfer tax, the 1% mansion tax on sales of $1,000,000 or more, and, on the East End, the Peconic Bay Community Preservation Fund. These are charged on the price of the deal, not your profit, and they are not capital gains.
Keep those two buckets apart and the whole subject gets a lot calmer.
Federal capital gains and the IRC §121 home-sale exclusion
For most people selling the home they actually live in, this is the section that matters.
How the gain is figured
Your gain is not your sale price. It is your sale price minus selling expenses, minus your adjusted basis (IRS Topic 409). Basis starts with what you paid, then goes up for capital improvements and certain costs, and can be adjusted for things like depreciation you claimed (IRS Pub 551; IRS Pub 523). A house held more than a year is long-term (IRS Topic 409). Rebuilding basis correctly (every improvement, every receipt) is exactly the kind of homework you do with your CPA, because it directly lowers your gain.
The exclusion
If, during the 5-year period ending on the sale date, you owned and used the property as your principal residence for periods adding up to 2 years or more, you can exclude up to $250,000 of gain (single) or $500,000 (married filing jointly) (IRC §121; IRS Topic 701). A few rules to know:
- Once every two years. You cannot use the exclusion if you already excluded gain on another home sale within the 2 years ending on this sale date (IRC §121(b)(3)).
- Depreciation is not excluded. Gain tied to depreciation you took after May 6, 1997 (for a home office or a rental period) does not get the exclusion (IRC §121(d)(6)).
- A reduced exclusion exists. If you fall short of the 2-year test because of a job change, a health issue, or another unforeseen circumstance, you may still get a partial exclusion (IRC §121(c)).
Reporting
Even if your gain is fully excluded, you may still have to report the sale. If you receive a Form 1099-S at closing, or if any part of the gain is not fully excludable, you report it on Form 8949 and Schedule D (IRS Topic 701). "Under the cap so I never file" is not a safe assumption. Ask your CPA whether your closing generated a 1099-S.
If you still have taxable gain: federal rates
Say your gain is bigger than the exclusion, or the home does not qualify. The leftover gain is taxed at the federal long-term capital gains rates of 0%, 15%, or 20%, depending on your taxable income.
For the 2026 tax year, the brackets from Rev. Proc. 2025-32 are laid out in the official IRS document:
- Single: 0% up to $49,450 of taxable income, 15% up to $545,500, 20% above that.
- Married filing jointly: 0% up to $98,900, 15% up to $613,700, 20% above that.
These thresholds are inflation-adjusted and change every year, so confirm the current year's figures against the IRS before you rely on them.
There is also the Net Investment Income Tax, an extra 3.8% that can apply when your modified adjusted gross income is over $200,000 (single) or $250,000 (married filing jointly) (IRS Topic 559; IRS NIIT overview). One important point: gain you exclude under IRC §121 is not net investment income, so the excluded part of a primary-residence sale does not get hit with the 3.8% (IRS NIIT overview).
The New York twist: no special capital gains rate
New York does not have a separate, lower rate for capital gains. New York starts from your federal adjusted gross income (Tax Law §612), so gain you already excluded federally under §121 generally is not in your New York income either. Any recognized gain that remains gets taxed as ordinary income on New York's regular brackets (Tax Law §601).
For the 2026 tax year, New York's bracket structure under §601 runs from a bottom rate of 3.90% up to a top rate of 10.90% on very high income (Tax Law §601). That 10.90% is the top of a progressive scale, not a flat home-sale tax, and it applies to income far above what a typical Long Island home sale produces. As with the federal figures, these rates can change year to year, so re-verify against the statute for the year you sell.
So when a blog tells you "the New York capital gains rate is 15%," that is wrong. There is no New York capital gains rate. New York taxes the leftover gain as ordinary income, and 15% is a federal bracket.
Long Island residency: no New York City income tax
This one saves Long Island sellers real money and gets missed constantly.
New York City's personal income tax is a tax on New York City residents. If you live in Nassau County or Suffolk County, you are not a New York City resident, so you do not pay New York City income tax on your home sale gain. The same goes for New York City's extra progressive "mansion" tiers: those are New York City add-ons and do not apply to a house in Massapequa, Huntington Station, or anywhere else on Long Island.
Long Island homeowner selling a primary residence: your income tax picture is federal plus New York State only. Do not let a New York City calculator inflate your number.
Nonresidents and snowbirds: Form IT-2663 at closing
If you are not a New York resident (you moved to Florida, you are an out-of-state investor, or you retired somewhere warmer and changed your domicile), there is a closing mechanic you need to know about on Long Island.
New York requires nonresidents to estimate and pre-pay New York income tax on the gain from selling New York real property, using Form IT-2663, at the highest §601 rate for the year, which is 10.90% for 2026 (Tax Law §663; Form IT-2663 (2026)). This is a recording gate: the county recording officer will not record the deed without the estimated-tax payment, the receipt showing it was paid, or a certification that the section does not apply (Tax Law §663(d)). On Long Island this is real: the Suffolk County Clerk lists IT-2663 among the forms required to record a deed (Suffolk County Clerk recording forms).
Two things people get wrong here:
- It is a tax on the gain, not the whole sale price. IT-2663 estimates tax on your gain, not 10.90% of everything you sold the house for (Tax Law §663).
- A principal residence can be exempt. If the property is your principal residence within the meaning of IRC §121, the section provides an exception, so the IT-2663 payment may not be required (Tax Law §663(c)). Your closing attorney and CPA handle the certification. This is worth flagging early, because it is a closing-critical item for a nonresident seller. It lands at the very end of the sale timeline, which we map out step by step in how long it takes to sell a house in New York.
Closing-cost taxes that are not capital gains
These are charged on the price of the deal, not your profit. They can hit at closing whether or not you have any taxable gain at all.
- New York State real estate transfer tax (RETT). The base rate is $2 for each $500 of consideration (or a fraction of it) when the price is over $500, which works out to about 0.4% of the price. It is generally paid by the seller (Tax Law §1402; N.Y. Dept. of Taxation and Finance).
- The "mansion tax." This is an additional 1% on residential property when the consideration is $1,000,000 or more, and it is generally paid by the buyer, not the seller (Tax Law §1402-a; N.Y. Dept. of Taxation and Finance). It is a transfer tax on the price. It is not capital gains, and it is not your profit being taxed.
- The Peconic Bay Community Preservation Fund (CPF). On the five East End towns of Suffolk County (East Hampton, Riverhead, Shelter Island, Southampton, and Southold), there is a local real estate transfer tax that funds land preservation. It is a transfer tax, not a capital gains tax. In the Town of Southampton, the rate is 2.5% (which includes a 0.5% Community Housing Fund portion), with an exemption on the first $100,000 of vacant land or the first $400,000 of improved residential property when the consideration is $2,000,000 or less (Town of Southampton CPF FAQ). The exact CPF rate is set town by town, so if your house is in East Hampton, Riverhead, Shelter Island, or Southold, confirm that town's current rate with the town and your closing attorney before you count on a number.
Most of Long Island (Nassau County and the rest of Suffolk County) is not in the Peconic CPF towns, so for a typical Massapequa or Levittown sale the CPF is not part of the picture.
Do your basis homework
The single biggest lever a seller controls is basis, because gain is sale price minus basis. Capital improvements over the years, certain closing costs, and other adjustments raise your basis and lower your gain (IRS Pub 551; IRS Pub 523). If you inherited the home, took depreciation, or ran a home office, the math changes. Pull your records together and let your CPA reconstruct your real basis. This is not a place to guess.
FAQ
Does selling to a cash buyer change my capital gains tax?
No. Selling for cash or selling "as-is" does not create any capital gains exemption. The rules in IRC §121, New York's §601, and the nonresident §663 mechanic do not care whether the buyer paid cash or got a mortgage (IRC §121; Tax Law §601). A cash sale can change your price and your timeline. It does not change the tax rules. Anyone who tells you cash is a tax holiday is wrong.
I inherited a house. How is my gain figured?
When you inherit property, your basis is generally the fair market value at the date of death, not what the person who left it to you originally paid (IRC §1014; IRS Pub 551). This "stepped-up basis" often shrinks the gain a lot, because you only pay on appreciation since you inherited it. Estate-tax consistency rules can apply, so have your CPA confirm the date-of-death value and your basis. We break down the full inherited-house tax picture, Long Island specifics included, in our guide to taxes when selling an inherited house on Long Island.
It was a rental. What about depreciation?
The §121 exclusion does not automatically apply to a rental or investment property. It applies to a home you owned and used as your principal residence for at least 2 of the last 5 years, so a pure rental usually does not qualify unless you converted it and met the tests (IRC §121). On top of that, gain tied to depreciation you took (or could have taken) after May 6, 1997 is not excludable and gets its own treatment (IRC §121(d)(6)). Depreciation recapture is exactly the kind of item a CPA should run for you before closing.
We are selling because of a divorce. Does that change things?
It can. Transfers of property between spouses or former spouses incident to a divorce are often nonrecognition events, and §121 has special rules that can let a spouse count the other spouse's ownership or use in some cases (IRC §1041; IRS Pub 523). Divorce sales get fact-specific fast, so this is a your-CPA-and-your-attorney conversation.
I have owned it less than 2 years. Am I stuck paying full tax?
Not necessarily. If you are selling before you hit the 2-year mark because of a change in your place of employment, a health issue, or an unforeseen circumstance, you may qualify for a reduced (prorated) exclusion instead of losing it entirely (IRC §121(c)). The rules define what counts, so have your CPA check whether your reason qualifies.
A plain disclaimer
This post is general information, not tax or legal advice, and it does not cover every situation. All rates and thresholds above are for the 2026 tax year, and they change every year: federal brackets are inflation-adjusted annually, and New York's rates and forms are updated too. Before you rely on anything here, run your own numbers with a CPA, confirm the details with a closing attorney, and check the current figures against the primary sources listed below for the year you actually sell.
Sources
- IRC §121 (home-sale exclusion): https://www.law.cornell.edu/uscode/text/26/121
- IRS Topic 701, Sale of Your Home: https://www.irs.gov/taxtopics/tc701
- IRS Topic 409, Capital Gains and Losses: https://www.irs.gov/taxtopics/tc409
- IRS Publication 523, Selling Your Home: https://www.irs.gov/publications/p523
- IRS Publication 551, Basis of Assets: https://www.irs.gov/publications/p551
- IRS Rev. Proc. 2025-32 (2026 long-term capital gains thresholds): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
- IRS Topic 559, Net Investment Income Tax: https://www.irs.gov/taxtopics/tc559
- IRS Net Investment Income Tax overview: https://www.irs.gov/individuals/net-investment-income-tax
- New York Tax Law §601 (personal income tax rates): https://www.nysenate.gov/legislation/laws/TAX/601
- New York Tax Law §612 (New York AGI from federal AGI): https://www.nysenate.gov/legislation/laws/TAX/612
- New York Tax Law §663 (nonresident estimated tax on real property sales): https://www.nysenate.gov/legislation/laws/TAX/663
- New York Form IT-2663 (2026): https://www.tax.ny.gov/pdf/current_forms/it/it2663_2026_fill_in.pdf
- Suffolk County Clerk, Recording Forms: https://suffolkcountyny.gov/Elected-Officials/County-Clerk/Recording/Forms
- New York Tax Law §1402 (real estate transfer tax): https://www.nysenate.gov/legislation/laws/TAX/1402
- New York Dept. of Taxation and Finance, Real Estate Transfer Tax (base tax and 1% mansion tax): https://www.tax.ny.gov/bus/transfer/rptidx.htm
- Town of Southampton, Community Preservation Fund FAQ: https://www.southamptontownny.gov/faq.aspx?TID=28
Selling a Long Island house for cash, without the guesswork
Taxes are one piece of your net. Price and certainty are the other. I buy houses directly across Nassau County and Suffolk County, pay cash, and close on your timeline. I am the buyer, not a wholesaler, so I do not tie your house up and shop the contract to someone else. When I make an offer, I am the one who closes on it.
We buy as-is, in any condition, with no fees and no commissions, and we pay all closing costs. Proof of funds is available on request. A cash offer is usually below full retail. What you get in return is speed, no repairs, no showings, and a number that does not change at the closing table.
Since 2019 I have bought over 300 homes and more than $130 million in property on Long Island, with 48 five-star Google reviews and a BBB A+ rating. As a licensed CPA, I care about the real net you walk away with, not just the headline price. I will not, though, prepare your return or tell you your exact gain: that is your CPA's job, and I will tell you so.
Want a cash offer within 24 hours? Call We Buy Long Island Homes Fast at 631-825-8747, or stop by the office at 173 Birch Hill Rd, Ste. B, Locust Valley, NY 11560.
