New York IT-2663: Why a Nonresident's Withholding Is Based on the Gain, Not the Sale Price

When a nonresident sells New York real estate, Form IT-2663 requires an estimated payment equal to 10.9% of the taxable gain — not a flat percentage of the sale price. That payment is collected at the deed recording, and because it's driven by the gain (sale price minus your adjusted basis and selling costs), a high-priced sale with a small profit can owe far less than a buyer or escrow officer might assume.

This is the single most misunderstood point about selling New York property as an out-of-state or foreign owner. People hear “withholding” and picture California's blunt 3.33%-of-price model. New York does something more taxpayer-friendly but also more paperwork-heavy: it makes you actually compute the gain on a worksheet and pay tax only on that gain. Below, we walk a full worked example using the official 2026 form, explain exactly which lines do the work, and clear up who never has to file at all.

What Form IT-2663 actually is

Form IT-2663, Nonresident Real Property Estimated Income Tax Payment Form, exists because New York wants to collect income tax on the gain from a real-estate sale before a nonresident leaves the state's reach. Under Tax Law § 663, “nonresident individuals, estates, and trusts are required to estimate the personal income tax liability on the gain, if any, from the sale or transfer of certain real property located in New York State.”

The 2026 form is used for any conveyance “after December 31, 2025, but before January 1, 2027.” A separate IT-2663 is required for each sale, and a married couple selling jointly may file one form with one payment.

Worked example: Priya's Brooklyn brownstone

Let's run a complete calculation through the official worksheet so the “gain, not price” rule is concrete.

Notice what drove the answer. Her sale “price” for withholding purposes was $900,000 after selling costs — but tax wasn't 10.9% of that. It was 10.9% of the $200,000 gain. If New York used California's price model instead, the comparison would look very different.

The bottom row is the punchline: under a gain-based model, a low-profit sale produces a small withholding even on an expensive house. Under a price-based model, the seller of a high-priced, low-margin property is the one who gets squeezed.

Why New York uses gain × highest rate, unlike California's 3.33%

The two states answer the same question — “how do we collect tax before the nonresident is gone?” — in opposite ways.

New York's Line 19 instruction is explicit: “you must use the tax rate equal to the highest rate of tax for the tax year as set forth in the Tax Law § 601. For tax year 2026 that rate is 10.90% (0.1090).” New York applies its top marginal rate as a conservative estimate — it assumes the worst-case bracket so the state is rarely under-collected — but only to the gain. Most sellers are in lower brackets, which is exactly why so many get a refund when they file the actual return.

California's default, by contrast, withholds 3⅓% of the total sales price and ignores basis entirely — simple for escrow, but it can over- or under-collect badly. California does offer an alternative gain-based calculation (Form 593, Part VI), which for an individual uses a 12.3% rate on the gain — conceptually the same move New York hard-codes for everyone.

When IT-2663 is filed — and who is exempt

Timing: at the recording, with the deed

Per the official instructions: “Submit your completed Form IT-2663 and full payment of estimated tax due, if any, to the recording officer of the county at the time the deed is presented to be recorded.” A New York deed generally won't be recorded unless each nonresident grantor has either signed Form TP-584, Schedule D (claiming exemption) or presents IT-2663 with full payment. The recording officer is effectively the collection point.

Who does not have to file

Tax Law § 663(c) lists the exemptions. A nonresident is not required to file IT-2663 if:

• You're a New York State resident at the time of sale. The estimated-tax requirement “does not apply to individuals, estates, or trusts who are residents of New York State.” (Residents still report the sale on their regular NY return.)
• The property qualifies in full as your principal residence under IRC § 121. This is the federal home-sale exclusion. Importantly, the New York instructions note this exemption applies “even if part of the gain is not excluded under IRC § 121 because the gain exceeds the amount of the exclusion.” If only part of the property was your home (say, a duplex you partly rented), you pay on the gain allocable to the non-residence portion.
• It's a foreclosure or deed-in-lieu conveyance with no additional consideration.
• The transferor or transferee is a U.S. or New York government agency, Fannie Mae, Freddie Mac, Ginnie Mae, or a private mortgage insurer.

Exempt sellers don't simply skip paperwork — they certify the exemption on Form TP-584, Schedule D (or TP-584-NYC for many New York City conveyances) so the recording can proceed.

How basis and selling expenses shrink the payment

Because the IT-2663 worksheet computes gain “in the same manner as for federal income tax purposes,” every legitimate dollar you add to basis or subtract as a selling cost reduces the gain on line 17 — and therefore the 10.9% payment on line 20. The worksheet structure (lines 5–17) does this for you:

In Priya's example, her $80,000 of improvements alone reduced the gain by $80,000 and thus cut her IT-2663 payment by $80,000 × 10.9% = $8,720. Her $12,000 of selling expenses cut it by another $1,308. This is why keeping receipts for capital improvements matters so much — on a gain-based form, undocumented basis is money left on the table at the closing table. (Watch the depreciation line: recaptured depreciation increases the gain, as it did for Priya.)

Claiming the IT-2663 payment on your IT-203 return

The IT-2663 payment is not a final tax — it's an estimated prepayment. The official instructions are clear: “Nonresident individuals, estates, and trusts should take into account the amount of estimated tax paid with Form IT-2663 when they file their 2026 New York State income tax return. Any tax refund that is due can be claimed at that time.”

For a nonresident, that return is Form IT-203, Nonresident and Part-Year Resident Income Tax Return. Here's how it closes the loop:

1. You report the actual gain on the IT-203 and compute your real New York tax — usually at a rate well below 10.9%, because most people aren't in the top bracket.
2. You enter the $21,800 already paid with IT-2663 on the IT-203's estimated-tax-payments line (the same line that captures other NY estimated payments for the year).
3. If your true tax on the gain is, say, $13,000, the $21,800 prepayment more than covers it — and New York refunds the difference after the return is filed.

One timing caveat from the instructions: “Estimated tax payments made with Form IT-2663 cannot be refunded prior to the filing of an income tax return.” So the over-withholding is locked up until you actually file the IT-203 for the year — another reason to file promptly. See the current return at the New York State Tax Department forms site.

Official sources: Form IT-2663 (2026) · Instructions for Form IT-2663 (IT-2663-I, 2026) · California FTB Form 593 instructions (2026). Figures verified against these official documents on 2026-06-03.