Capital Gains Tax When Selling Your NYC Co-op

You are subject to both federal and state capital gains tax when selling a co-op in NYC. You may be able to exclude up to $500,000 of gains under the Section 121 home sale exclusion provided certain ownership and use tests are met.

Selling a co-op is no different than selling a condo or townhouse in NYC when it comes to capital gains taxes. If your sale proceeds are greater than your cost basis and you you exceed any Section 121 exclusion, you will incur capital gains taxes.

Profit is defined as any sale proceeds which exceed your cost basis. Closing costs and capital improvements may be added to your cost basis (and are therefore deductible) when calculating the taxable gain on the sale of a NYC co-op.

When selling a co-op in NYC, you are subject to additional taxes beyond capital gains. These include NYC & NYS Transfer Taxes and the New York State Stock Transfer Tax. Your co-op may also levy a resale fee, which is often referred to as a flip tax.

Click on the sections below to learn more.

Does the Section 121 home sale exclusion on capital gains apply to co-ops?

What expenses can be deducted when calculating co-op capital gains tax?

How much are Federal capital gains taxes when selling a NYC co-op?

How much are NY State capital gains taxes when selling a NYC co-op?

How is cost basis defined for a co-op apartment?

What taxes do you pay when you sell a NYC co-op?

NYC co-op apartments qualify for the Section 121 home sale exclusion which allows homeowners to exclude up to $500,000 from the sale of their primary residence if certain ownership and use tests are met.

Single taxpayers can exclude up to $250,000 of capital gains from their income. Married couples filing jointly can exclude up to $500,000 of capital gains.

To qualify for the Section 121 exclusion, you must have owned and used the co-op as your primary residence for at least two out of the five years preceding the sale. This shouldn’t be too much of a hurdle considering that co-ops are overwhelmingly used as primary residences.

You may only claim a Section 121 exclusion once every two years.

Closing costs, capital improvements and certain assessments may be deducted when calculating the taxable gain on the sale of a NYC co-op.

Buyer Closing Costs

You may deduct qualifying closing costs incurred when you originally purchased your co-op. Eligible deductions include the Mansion Tax, Mortgage Recording Tax, title insurance, attorney fees and other purchase-related fees.

Capital Improvements

Significant renovations or improvements made to the property, such as gut renovating a bathroom, can be added to your basis.

Building Special Assessments

You may be able to deduct certain special assessments levied by the co-op during ownership if they are considered capital improvements.

‘Capital assessments’ are used to fund long-term repairs, renovations, or improvements to the property. These assessments are typically used to finance major projects that enhance the property’s overall value or address significant structural issues.

Examples of capital assessments may include roof replacements, elevator upgrades, façade repairs, or installing energy-efficient systems. The purpose of these assessments is to maintain and enhance the property’s physical condition and amenities for the benefit of all residents or owners.

Operating assessments, on the other hand, are charges imposed to cover the ongoing operational expenses of a building or community. These expenses may include routine maintenance, utilities, insurance, management fees, security, landscaping, and other day-to-day operational costs.

Operating assessments are not generally considered to be tax deductible for capital gains tax purposes.

Seller Closing Costs

You may also deduct seller closing costs when calculating capital gains taxes.

Certain closing costs for sellers, such as NYC & NYS Transfer Taxes, broker commissions, staging and preparation costs, and co-op flip tax, can also be deducted. Including these expenses in the basis calculation reduces the taxable capital gains amount.

A qualifying deduction lowers your capital gains tax liability by increasing the property’s cost basis.

The Federal capital gains tax rate on the sale of a NYC co-op ranges from 0% to 37%. The same capital gains taxes rates apply to the sale of a NYC co-op as with any other real estate.

In the unlikely event you owned a NYC co-op for one year or less before selling, any gains from the sale would be considered short-term capital gains and taxed at your ordinary income tax rates, which can range from 10% to 37%.

If you owned the NYC co-op for more than one year before selling, any gains from the sale would be considered long-term capital gains. Current long-term capital gains tax rates range from 0% to 20% as follows:

• 0% if your taxable income falls within the 10% or 12% tax brackets.

• 15% if your taxable income falls within the 22%, 24%, 32%, or 35% tax brackets.

• 20% if your taxable income falls within the 37% tax bracket.

The Net Investment Income Tax (NIIT) is an additional tax of 3.8% payable on capital gains for high income earners.

NIIT income thresholds are $200k for single filers, $125k for married individuals who file separately, and $250k for married filing jointly.

NYS capital gains tax rates are the same as regular income tax rates and are based on your taxable income. If you’re a resident of NYC, you are subject to both NYS and NYC income tax on capital gains from the sale of your co-op.

New York State marginal tax rates are between 4% and 10.9%. New York City has four income tax brackets ranging from 3.078% to 3.876%.

The cost basis of a NYC co-op is the original purchase price of the apartment plus buyer and seller closing costs as well as the costs of capital improvements made during ownership.

Suppose you purchased a co-op in NYC for $500,000. During the course of ownership you invested $40,000 in significant renovations, and you incurred 10% in buyer and seller closing costs combined, amounting to $50,000. Your cost basis is the sum of these amounts, which works out to $590,000. If you sell the co-op for $600,000, you will have a taxable gain of $10,000.

If you qualify for the Section 121 home sale exclusion, you won’t have any capital gains tax liability since the exclusion amount ($250k or $500k) exceeds the $10,000 gain.

When you sell a co-op in New York City (NYC), the specific taxes you may be required to pay include NYC & NYS Transfer Taxes, your co-op’s flip tax and the Co-op Stock Transfer Tax.

NYC & NYS Transfer Taxes

Combined NYC and NYS Transfer Taxes for sellers in New York City is between 1.4% and 2.075% of the sale price. Both NYC and New York State charge a separate transfer tax.

Co-op Flip Tax

The average co-op apartment flip tax in NYC is 1% to 3% of the sale price, and it’s customarily paid by the seller. Exact flip tax amounts vary by building. Learn more here.

Stock Transfer Tax

The New York State Stock Transfer Tax is a tax of $0.05 per share of stock being sold. The number of shares assigned to a co-op unit varies by building. It can range from a single share to a few thousand shares.

The allocation of shares between apartments varies by co-op. As a result, no meaningful conclusions can be drawn by comparing the share count of two apartments in different co-ops.

Additional Seller Closing Costs

Additional seller closing costs in NYC include broker commissions, attorney fees, loan satisfaction fees and building fees.