Updated October 7, 2026. Quick answer: Generally no, if you qualify for the federal exclusion. New York resident income tax starts from “federal adjusted gross income after certain New York additions”, and a gain excluded under section 121 is not in federal adjusted gross income. Nonresident sellers must prepay at the closing on Form IT-2663 unless the property is a principal residence within the meaning of IRC section 121.
New York tax on home sale profit at a glance
| Item | What the documents say |
|---|---|
| Profit on your main home | Starts from federal adjusted gross income, which excludes a gain excluded under section 121 (no document read says so in one line) |
| Rate on gain above the exclusion | Graduated: 4% on the first $17,150 of New York AGI (2025 schedule), up to 10.9% at the top |
| Collected at the sale | Form IT-2663 for nonresident sellers: estimated tax at the highest rate (10.90% for 2026) unless a principal residence under IRC section 121; residents do not prepay |
| Source | NYS Department of Taxation and Finance |
What the New York documents say
The Instructions for Form IT-201 say a resident’s New York taxable income starts from “federal adjusted gross income after certain New York additions”. Under the federal statute, “Gross income shall not include gain from the sale or exchange” of a principal residence that meets the ownership and use tests, so an excluded gain never enters federal adjusted gross income. The documents read list no New York addition that adds it back. That is reasoning from two documents; neither says in one line that New York follows the exclusion.
The rate side is the New York State schedule in the IT-201 instructions, which begins at 4% on the first $17,150 of New York adjusted gross income in the 2025 schedule and rises to 10.9% in the highest bracket.
What the federal exclusion requires
Most state answers start here. The statute says “Gross income shall not include gain from the sale or exchange” of property that, during the five years before the sale, you owned and used as your principal residence for periods adding up to two years or more. The limit is “shall not exceed $250,000”, or $500,000 for a husband and wife who make a joint return and meet the statute’s conditions. See CMG’s home sale taxes page and exclusion calculator.
A worked example at a $400,000 gain
An illustration, not a return: a married couple living in New York sells their main home with a gain of $400,000 and meets the federal ownership and use tests. The gain is below the $500,000 joint exclusion, so it is not in federal adjusted gross income and, on the documents read, $0 is taxed by New York State. As a second illustration, computed below, suppose the gain were $600,000. The amount above the exclusion would then be $100,000, which enters federal and New York income and is taxed at the graduated rates; this page computes no rate. New York City and Yonkers taxes are outside this page.
What is collected at the sale
Form IT-2663 applies to nonresident sellers of New York real property. The instructions say the requirement does not apply to “residents of New York State at the time of the sale”, and that a nonresident whose property is the seller’s principal residence “within the meaning of Internal Revenue Code (IRC) § 121” in total is exempt under “Tax Law § 663(c)(1)”. Otherwise the form says “For tax year 2026 that rate is 10.90% (0.1090)” applied to the gain.
What changes in 2026
New York: the IT-2663 rate is printed for tax year 2026 as 10.90%. The resident rate schedule read is for 2025.
What the documents do not say
- No document read says in one line that New York follows the section 121 exclusion; the answer is reasoned from the IT-201 starting point and the federal statute. The rate schedule read is 2025, and the 10.90% IT-2663 rate is the 2026 figure the form prints.
Common mistakes
- Skipping Form IT-2663 as a nonresident seller whose property is not entirely a principal residence under section 121.
- Assuming a New York resident prepays on the closing; the instructions say the requirement does not apply to residents.
- Assuming the answer for one state applies to another, or that the state answer changes the federal tax on the sale.
Related: home sale taxes, state tax on home sale profit, how New York taxes capital gains, New York retirement taxes, and home sale exclusion calculator.
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Answer againSources
- Instructions for Form IT-2663 (2026): https://www.tax.ny.gov/pdf/current_forms/it/it2663i.pdf
- Form IT-2663 Nonresident Real Property Estimated Income Tax Payment Form (2026): https://www.tax.ny.gov/pdf/current_forms/it/it2663_fill_in.pdf
- Instructions for Form IT-201 (IT-201-I) Resident Income Tax Return: https://www.tax.ny.gov/pdf/current_forms/it/it201i.pdf
- 26 U.S.C. 121, Exclusion of gain from sale of principal residence (U.S. Code, GovInfo): https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapB-partIII-sec121.htm
Sources: the primary documents linked above, read on October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.