April 22, 2026
Capital gains taxes on a commercial real estate sale in New York City are genuinely complicated, and the complication is expensive if you do not understand it before you sell. This is not an article that will tell you how to avoid taxes. What it will do is make sure you understand the full picture before you sign a listing agreement, because the decisions you make in advance of a sale can make a meaningful difference in what you actually walk away with.
The NYC Capital Gains Stack
When you sell a mixed-use building in New York City as a long-term owner, you are dealing with three separate layers of taxation at once.
At the federal level, long-term capital gains rates for 2026 are 0%, 15%, or 20% depending on your total taxable income, per current IRS and tax guidance. For most property owners in NYC selling a building at a meaningful gain, the 20% federal rate is the realistic number to plan around. On top of that, the 3.8% Net Investment Income Tax applies if your modified adjusted gross income exceeds $200,000 as a single filer or $250,000 as a married filer.
New York State treats capital gains as ordinary income with no preferential rate for long-term holdings. The top NY State rate sits at 10.9%, and for NYC residents, the combined state and city tax rate on capital gains can exceed 14.7%, per National Tax Reports.
Add it all together and a high-income NYC resident selling an appreciated mixed-use property is looking at a potential combined tax burden of 35 to 38% on long-term gains, and potentially above 50% on short-term gains taxed as ordinary income. Valur's analysis of New York capital gains for 2026 puts the combined rate at up to approximately 38.6% on long-term gains for a high-income NYC resident.
Depreciation Recapture: The Number Owners Forget
Here is the piece that surprises most mixed-use owners when they sit down with their accountant. The IRS requires that when you sell a property, you recapture the depreciation deductions you took over your ownership period and pay tax on that amount as ordinary income, not at the preferential capital gains rate. This is called Section 1250 depreciation recapture, and the federal rate on recaptured depreciation is capped at 25%.
If you bought a mixed-use building in Queens for $800,000 fifteen years ago and have been taking depreciation deductions throughout your ownership, the recapture on that depreciation adds a tax obligation on top of your capital gains that can be significant. This number needs to be modeled before you price the deal, not after you are under contract.
What Has Changed with the SALT Cap
One meaningful change that benefits NYC property owners in 2026 is the expansion of the SALT deduction cap. The Big Beautiful Bill, signed into law in July 2025, raised the SALT cap from $10,000 to $40,000 through 2030. For NYC owners paying significant state income taxes and property taxes, the ability to deduct up to $40,000 in state and local taxes on your federal return reduces some of the sting of New York's high tax environment. It does not eliminate the capital gains burden, but it changes the after-tax math on the year you sell.
The 1031 Exchange Option
The most commonly discussed strategy for deferring capital gains on a commercial sale is a 1031 like-kind exchange, which allows you to sell your current property and roll the proceeds into a replacement property of equal or greater value without triggering a capital gains tax event at the time of sale. The tax is deferred, not eliminated, but deferral has real value, especially when you have a large gain sitting in a building you have owned for many years.
The mechanics require strict timing compliance. You have 45 days from the close of your sale to identify replacement properties and 180 days to close on the replacement. Working with a qualified intermediary and a CPA who handles commercial real estate transactions is non-negotiable if you are going down this path.
The Practical Takeaway
The most important thing you can do as an NYC mixed-use property owner before deciding to sell is to run a net proceeds analysis with your accountant. That means calculating your adjusted cost basis (original purchase price, plus capital improvements, plus closing costs, minus accumulated depreciation), determining your expected sale price, and mapping out the full tax stack on that gain before you make any decisions.
The difference between a sale structured thoughtfully in advance and one that closes without tax planning can easily be six figures on a mid-sized Queens or Brooklyn mixed-use building. The conversation with a real estate-specialized CPA before you list is one of the highest-return phone calls you can make.
Disclaimer: This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.
