Selling Your House on Long Island: What the Tax Bill Could Look Like

Long Island home prices have risen sharply over the past decade. Nassau County median sale prices are running roughly $839,000 as of spring 2026. Suffolk is around $700,000. For homeowners who bought fifteen or twenty years ago, the gap between what they paid and what they can sell for has grown into a number that carries real tax consequences.

Most homeowners know there is a federal tax break on profits from the sale of a primary residence. Fewer people know exactly how it works, where it stops, or what New York State does on top of it. If you are thinking about selling, the time to understand the tax picture is before you close.

The Federal Exclusion: What It Covers and What It Does Not

Under Section 121 of the Internal Revenue Code, homeowners who meet the ownership and use requirements can exclude up to $250,000 of home sale gain from federal income tax if filing single, or up to $500,000 for married couples filing jointly.

To qualify, you must have owned and used the home as your primary residence for at least two years out of the five years immediately before the sale. The two years do not need to be consecutive. Short absences, including vacations and temporary relocations, generally still count as periods of use. You can only use the exclusion once every two years.

The exclusion does not cover every gain on every sale. Consider a couple who bought a Nassau County home in 2008 for $400,000 and sells it today for $840,000. Their gain is $440,000. The $500,000 joint exclusion covers it entirely and they owe no federal capital gains tax on the sale. The same sale for a single filer produces a $190,000 taxable gain after the $250,000 exclusion is applied. At a 15% long-term capital gains rate, that is $28,500 in federal tax.

For homeowners who bought even earlier, or who made significant improvements and are now selling at today's prices, gains above the exclusion threshold are not unusual on Long Island. The exclusion limits have not moved since 1997, and Long Island prices have roughly doubled since then in many areas.

How Your Gain Is Actually Calculated

The taxable gain is not simply the difference between your sale price and what you originally paid. Your cost basis includes the original purchase price plus certain closing costs from when you bought, plus the cost of any capital improvements you made over the years. Improvements that add value or extend the life of the property, such as a new roof, an addition, a finished basement, or a kitchen renovation, increase your basis and reduce your taxable gain.

What does not increase your basis: minor repairs, repainting, or fixing a broken component generally do not increase basis unless they are part of a larger capital improvement project. Routine upkeep keeps the house in condition but does not add to its value in the eyes of the tax code.

On the sale side, certain selling expenses reduce your net proceeds for tax purposes. Broker commissions, legal fees, transfer taxes, and other transaction costs come off the top. Your taxable gain is what remains after subtracting your adjusted basis from your adjusted sale proceeds.

Keep your records. If you cannot substantiate the cost of improvements you made ten or fifteen years ago, you cannot add them to your basis. Receipts, contracts, and permit records from renovation work have real dollar value when you eventually sell. Routine maintenance and repairs do not increase your basis under the tax code. If you ever rented any part of the home or used it for business and claimed depreciation, that adds another layer of calculation that needs to be addressed before closing.

What New York State Does with the Gain

New York State recognizes the Section 121 exclusion the same way the federal government does. If your gain is fully covered by the exclusion, there is generally no New York State income tax on the sale either.

Where New York diverges from federal treatment is in how it taxes whatever remains. The federal government gives long-term capital gains preferential rates of 0%, 15%, or 20% depending on income. New York does not. The state taxes all capital gains as ordinary income, at progressive rates ranging from 4% to 10.9% in 2026. There is no reduced state rate for long-term gains.

That matters for the single-filer example above. The $190,000 taxable gain that generates a 15% federal rate could face a 6% to 9% New York State rate on top of that, depending on total income for the year. High-income sellers may also owe an additional 3.8% Net Investment Income Tax on the taxable gain, once modified adjusted gross income exceeds $200,000 for single filers or $250,000 for joint filers. The combined federal and state tax on that portion of the gain is real money, and none of it shows up on a closing disclosure.

Know the Number Before You Close

A home sale on Long Island can generate a substantial gain even after the Section 121 exclusion. What you owe depends on how long you owned it, how you used it, what improvements you made, what your income looks like the year you sell, and whether New York State takes a cut on top of the federal tax. The gain lands on your return the year you close, and for sellers with other significant income that year, it can push brackets higher than expected. Getting that number right before closing gives you options. Getting it wrong produces a tax bill that shows up after the closing table.

Jim O’Callaghan, CPA, works with homeowners across Queens and Long Island on the tax side of home sales, including basis calculations, gain projections, and state tax implications, before the closing date, not after. If you are thinking about selling in 2026, the right time to run the numbers is before you sign a contract.

Phone: 718-326-0500 (Glendale) | 631-673-0617 (Melville)

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