You’ve owned the rental for years. Maybe a single-family in Levittown that you bought as a starter home, lived in for a while, then converted to a rental when you moved up. Maybe a two-family in Hicksville that’s been in the portfolio for over a decade. Maybe a small portfolio of Long Island rentals that’s been the side project, or the main project, or the income that supports retirement. Whatever the path in, you’re thinking about selling, and the question is some version of “what does this actually net me, and what do I need to know before I list.”
This guide is the Long Island answer to the rental-sale question. The federal and NY tax math (capital gains plus depreciation recapture, the two interacting in ways that surprise sellers who haven’t run the numbers), the §1031 exchange option that defers the tax for sellers who want to redeploy, the tenant logistics that distinguish rental sales from primary-residence sales, and the as-is path when the sale is the simpler answer.
What is selling a rental property in New York?
Selling a rental property in New York means transferring an investment-use property under tax rules that differ sharply from a primary-residence sale. The IRC §121 capital-gains exclusion does not apply, depreciation recapture under IRC §1250 is taxed at up to 25%, and a §1031 like-kind exchange can defer the tax if the seller redeploys into replacement investment real estate within strict 45-day and 180-day deadlines.
What changes from a primary-residence sale
Two big differences and one operational difference.
Tax treatment is materially different
A primary-residence sale qualifies for the IRC §121 capital-gains exclusion: $250,000 single, $500,000 married filing jointly, on gain from a primary residence owned and used 2 of the last 5 years.
A rental property does not qualify. The full gain is taxable.
This matters more than people assume, because long-held Long Island rentals often have substantial gains. A property bought for $280,000 in 2008, depreciated annually, sold for $620,000 in 2026, has a gain on the order of $400,000 to $480,000 depending on basis adjustments. None of it is excluded.
Depreciation recapture stacks on top
When you’ve taken depreciation deductions on the rental over the years (and the IRS treats depreciation as “allowed or allowable” whether you actually claimed it on Schedule E or not), recapture applies at sale. The unrecaptured §1250 gain (the depreciation portion) is taxed at up to 25%, separate from the capital-gains rate on the rest of the gain.
For a Long Island rental held 15 years with $80,000 of accumulated depreciation:
- Depreciation recapture: $80,000 × up to 25% = up to $20,000 federal tax
- Plus capital-gains tax on the remaining gain at 15% or 20%
- Plus 3.8% net investment income tax for higher earners
- Plus NY State income tax (up to 10.9% on the gain in 2026 brackets)
Total tax on a typical $400,000 long-held LI rental gain can run $80,000 to $130,000+, depending on income bracket and specific basis math.
Tenant logistics
Existing leases transfer with the property. Security deposits transfer at closing as adjustments. Tenant cooperation during showings (or the lack of it) materially affects retail-listing outcomes. Eviction is slow under post-HSTPA NY law, so removing tenants pre-sale is rarely fast.
The companion guide Selling a House With Tenants on this site covers the tenant mechanics in depth. This guide focuses on the investment-property-specific issues.
The §1031 exchange option
The most common tax-deferral tool for rental-property sellers. Section 1031 of the Internal Revenue Code allows tax-deferred exchange of real property held for investment or business use, when replaced with like-kind real property of equal or greater value.
The structure:
- Sale of the relinquished property. Closing happens normally, but the proceeds go to a Qualified Intermediary (QI) rather than to the seller. The seller cannot have constructive receipt of the funds.
- 45-day identification period. Within 45 days of closing on the relinquished property, the seller must identify candidate replacement properties in writing to the QI. Up to 3 properties can be identified without value limits, or more under specific rules.
- 180-day replacement period. Within 180 days of closing on the relinquished property, the seller must close on at least one of the identified replacement properties.
- Like-kind requirement. The replacement must be real property held for investment or business use. After the 2017 Tax Cuts and Jobs Act, §1031 is restricted to real property only (personal property exchanges no longer qualify). The like-kind standard is broad: a Long Island rental can be exchanged for any real estate held for investment or business use, in any state, of any property type (residential rental, commercial, industrial, raw land, etc.).
- Equal-or-greater value. The replacement must have equal or greater value than the relinquished property to fully defer tax. If the replacement is of lesser value, the difference (“boot”) is taxable.
Tax deferral, not elimination. The exchange defers the tax until the eventual sale of the replacement property (or, if the seller dies still owning the replacement, the basis steps up at death and the deferred tax is eliminated, this is the well-known “swap till you drop” planning approach).
§1031 requires careful procedure. A QI is required (the seller cannot just hold their own funds). The deadlines are absolute (no extensions for ordinary delays). The contract has to reference the §1031 structure. The replacement property has to actually fit the criteria.
For sellers planning a §1031, engagement with a qualified intermediary should happen before contract signing, not at the last minute. The QI handles the technical compliance, the seller’s CPA handles the strategy.
Without §1031: the tax math
For sellers not pursuing §1031, the tax bill comes due in the year of sale.
Worked example for a typical long-held Long Island rental:
- Original purchase price: $280,000 (2010)
- Capital improvements during ownership: $35,000
- Accumulated depreciation taken: $76,000 (15 years, straight-line, residential)
- Adjusted basis: $280,000 + $35,000 - $76,000 = $239,000
- Sale price: $620,000
- Selling expenses (commission, attorney, transfer tax): $40,000
- Amount realized: $580,000
- Total gain: $580,000 - $239,000 = $341,000
Of which:
- Unrecaptured §1250 gain (depreciation portion): $76,000, taxed at up to 25% federal = $19,000 federal recapture tax
- Remaining capital gain: $341,000 - $76,000 = $265,000, taxed at long-term capital-gains rates (15% or 20% depending on income) = $40,000 to $53,000 federal capital-gains tax
- Plus 3.8% NIIT on the gain (if the seller’s AGI exceeds the NIIT threshold): $13,000
- Plus NY State income tax (varies by bracket): $25,000 to $37,000
Total tax bill on this hypothetical sale: roughly $97,000 to $122,000.
The numbers move with the seller’s specific income bracket, the actual basis adjustments, and the year-of-sale tax laws. A CPA models the specific outcome.
The point: the rental sale’s net to seller is materially different from gross proceeds, and the tax bill is the largest single line item after the mortgage payoff. Plan for it before listing, not after.
What buyers want to see
Investor buyers (us included) underwrite rental properties on income, expense, condition, and market data. The documentation that drives a higher offer:
Lease copies and rent roll
A current rent roll showing each unit, current tenant, lease term, monthly rent, security deposit, and any unusual lease terms. Lease copies for each tenant.
Security-deposit accounting
Documented record of which tenants have deposits, how much, where the deposits are held. Real Property Law §7-103 requires deposits in trust, separate from operating funds, and the closing transfers the obligation. Sellers without clean deposit records face buyer-side haircuts to cover the uncertainty.
Tax bills
Recent property-tax bills (Nassau or Suffolk plus any village or special-district taxes). Important because Long Island property taxes are high and a buyer’s debt-service-coverage ratio depends on the actual tax burden, not an estimate.
Utility bills (if landlord-paid)
If you pay water, sewer, gas, electricity, or any portion of utilities for the tenant, recent bills. Tenant-paid utilities don’t need to be documented from the seller’s side.
Insurance
Current policy showing coverage type and limits. For multi-family or rental properties, dwelling-specific landlord policies (HO-3 or DP-3 type) are common, with rates higher than owner-occupied. Buyer’s insurance broker will quote independently, but the current policy’s claim history matters.
Maintenance and capital-improvement records
Records of major work (roof, HVAC, plumbing, electrical, foundation) including contractor names, permit numbers, dates, and warranties. These adjust the buyer’s underwriting of expected near-term capital expenditures.
Schedule E
The Schedule E from your federal tax return showing rental income and expenses. Optional but persuasive when accurate, the buyer compares your reported numbers to their underwriting and a clean match raises confidence.
Certificate of Occupancy and rental registration
For multi-family properties, the CO showing approved use class. For municipalities with rental registration requirements (some Long Island towns and villages require rental property to be registered annually), proof of current registration. CO gaps and registration lapses are common closing-day issues.
Tenant estoppel certificates
Where time permits, signed estoppels from each tenant confirming the lease terms. Not always achievable but valuable when achievable.
A clean documentation package raises the offer materially compared to a “we’ll figure it out at closing” approach, particularly for properties with multiple units or long-term tenants.
Selling tenanted versus selling vacant
Same trade-off as discussed in the dedicated tenant-property guide, with rental-specific framing.
Selling tenanted
To investor buyers, attractive: rent rolls in place, tenants paying, vacancy risk transferred to seller already absorbed. Investor offers price the income stream and condition.
To owner-occupant buyers, generally unattractive: they want vacant possession, the lease in place creates eviction-risk and timeline-risk that retail buyers don’t want.
For mixed-use properties (two-family with one owner-occupied unit and one tenanted unit), the seller’s vacancy on closing is straightforward (the seller leaves), the tenanted unit transfers tenant-occupied, and investor or hybrid buyers underwrite both.
Selling vacant
Higher per-square-foot pricing in many Long Island markets because retail buyer pool is broader. Carrying cost during vacancy adds up (typical $1,800 to $3,000 per month, see vacant-house guide). Eviction or natural-vacancy timeline runs months under post-HSTPA NY law.
For a rental property whose tenant is on month-to-month after a long tenancy, the HSTPA tiered notice (60 to 90 days based on tenancy length) plus typical move-out logistics means vacancy is realistic 4 to 6 months after starting the non-renewal process. The cost-benefit of waiting depends on the per-month carrying cost vs. the retail-vs-investor pricing differential.
How NY Cash Sale handles rental-property sales
We are a Long Island cash buyer, principal not agent. Rental properties are part of our pipeline, both single-family rentals and small multi-family.
The way it actually goes:
- You submit your address (or call us). Within about 5 minutes, our team calls back.
- The first conversation is roughly 10 minutes. We confirm the basics: property type and unit count, current rent roll, lease structures, tenant payment history, condition, your timeline, whether you’re considering §1031.
- We schedule a walkthrough. Tenant cooperation logistics handled carefully, we don’t pressure tenants and we coordinate showing windows.
- Within 24 hours of the walkthrough we send a written cash offer. Underwriting reflects the income stream and condition. You see the math.
- If you accept and you’re doing a §1031, we sign with a Qualified Intermediary in the closing structure, the contract references the §1031 mechanics, and the closing wire goes to the QI rather than to you. If you’re not doing §1031, the closing is conventional, wire to your closing attorney’s escrow then to you.
- Closing happens in 14 to 30 days. Lease and security deposit transfer. Tenants stay in place under existing leases.
We pay all closing costs on our side, you do not bring money to the table. Whether your goal is liquidating the portfolio, redeploying via §1031, or simplifying ahead of retirement, the 10-minute call is the fastest way to know what your specific Long Island rental nets in an as-is sale.