Capital gains, transfer taxes, and NY-specific rules explained
How the Section 121 exclusion works
To qualify for the full exclusion, you must have owned the home and used it as your primary residence for at least 2 of the 5 years immediately before the sale. The 2 years do not need to be consecutive. If you qualify, you can exclude up to $250,000 of gain (single filer) or $500,000 (married filing jointly) from federal income tax entirely.
If you partially qualify — for example, you've lived in the home 18 months of the required 24 due to a job relocation, health reason, or unforeseen circumstance — the IRS allows a pro-rated partial exclusion. The amount excluded equals the fraction of 2 years you satisfied, multiplied by the full exclusion limit.
Federal long-term capital gains rates
If your gain exceeds the Section 121 exclusion limit, the excess is subject to federal capital gains tax. For assets held more than one year (which your home almost certainly qualifies as), the federal long-term capital gains rates in 2026 are 0%, 15%, or 20% depending on your taxable income. High earners may also owe the 3.8% Net Investment Income Tax (NIIT) on the excess gain.
New York State — gains taxed as ordinary income
New York State does not have a preferential capital gains rate. Any gain above the federal Section 121 exclusion is included in your NY state taxable income and taxed at your marginal state income tax rate, which tops out at 10.9% for the highest earners. NYC residents also pay New York City income tax on top of that, with rates up to 3.876%.
This combined state-and-city tax bite makes the effective tax rate on gains above the federal exclusion significantly higher for Queens homeowners than it appears at the federal level alone.
Inherited property and step-up in basis
If you inherited a home in Queens, the cost basis for tax purposes is generally stepped up to the fair market value of the property at the date of the original owner's death. This means decades of appreciation during the deceased's lifetime essentially disappear for tax purposes. If you sell the home shortly after inheriting it at roughly its current market value, your taxable gain may be very small or zero. Any appreciation that occurs after the date of death is taxable when you sell.
Depreciation recapture for rental property sellers
If you're selling a property you've used as a rental — or a portion of your home claimed as a home office — depreciation deductions you've taken over the years must be "recaptured" at closing, taxed at up to 25% federally. This is separate from capital gains and cannot be excluded by the Section 121 exclusion. Rental property sellers should factor this into their net proceeds calculation.
1031 exchanges for investment properties
Homeowners selling their primary residence cannot use a 1031 exchange. However, if you're selling an investment property in Queens — a rental home, commercial building, or multifamily you don't live in — you may qualify for a Section 1031 like-kind exchange, which allows you to defer capital gains taxes by reinvesting into another investment property. Strict timelines apply: 45 days to identify a replacement property, 180 days to close. A qualified intermediary must hold funds during the exchange.
NY transfer taxes — example calculation on a $700k Queens home
On a $700,000 Queens home sale, here's what transfer taxes look like: NYS transfer tax = $700,000 × 0.4% = $2,800 (seller pays). NYC transfer tax = $700,000 × 1.425% = $9,975 (seller pays, since this exceeds $500k for a 1–3 family home). Total transfer taxes: approximately $12,775. This is in addition to your real estate commission, attorney fees, and any other closing costs. No specific net proceeds are guaranteed.
What to do before you close
Before listing your Queens home, it's worth having a conversation with a licensed CPA or tax attorney about your specific situation. Variables that matter: how long you've owned the property, your filing status, your current income level, whether the home has rental history, and whether there are other estate or inheritance factors involved. Knowing your tax picture in advance lets you make informed decisions about timing and pricing.