Understanding Capital Gains Tax on Rental Property Sales in NY

If you own an investment property in New York State and are ready to sell, you must prepare for tax implications. Unlike selling a primary residence (where individuals can exclude up to $250,000 of capital gains), investment property sales are subject to capital gains taxes and depreciation recapture. Here is a breakdown of what you need to know.

Federal and State Capital Gains Tax Rates

Capital gains are the profits you make from selling an asset for more than your purchase price. For federal taxes, long-term capital gains are taxed at 0%, 15%, or 20%, depending on your income. New York State also taxes capital gains as regular income, meaning you must pay state income tax on the profits as well.

Depreciation Recapture

During the years you owned the rental property, you likely claimed depreciation deductions to lower your taxable income. When you sell, the IRS requires you to pay a tax on the accumulated depreciation deductions you claimed, up to a maximum rate of 25%. This is known as depreciation recapture.

How to Minimize Tax Liability

• 1031 Exchange: Reinvesting the proceeds from the sale into a "like-kind" investment property to defer taxes.
• Deduct Capital Improvements: Adding the cost of major renovations (like a new roof or HVAC system) to your property's cost basis, which reduces the taxable gain.
• Direct Sale Savings: Selling directly to a cash buyer like Peak Cash Buyers eliminates agent fees, keeping more profit in your pocket. Read how we buy rental properties in Buffalo.