White Plains rental property — selling rental property tax strategy the Lower Hudson Valley

Selling a Rental Property in the Hudson Valley, NY: Depreciation Recapture & Tax Strategy

✍️ Frank Sanchez & Larry Friedman · 📅 2026-03-10 · ⏱ 13 min read · 📂 Landlord Exit

Updated March 2026

If you're thinking about selling a rental property in the Hudson Valley or the broader the Lower Hudson Valley area, the tax implications are significantly more complex than selling a primary residence — and getting them wrong can cost you tens of thousands of dollars at tax time. This guide covers depreciation recapture, capital gains treatment, 1031 exchange strategy, and New York-specific tax rules for rental property dispositions.

Critical First Step

Before selling any rental property, consult a CPA or tax attorney who understands New York and federal investment property rules. The timing, structure, and buyer type of your sale all affect your tax outcome. This article is educational — it is not tax advice.

Understanding Depreciation Recapture — The Surprise Tax Bill

Every year you've owned a residential rental property, the IRS has allowed you to deduct 1/27.5 of the building's value as a depreciation expense. This is one of real estate's greatest tax advantages while you own — but it creates a tax liability when you sell that many the Lower Hudson Valley landlords don't adequately plan for.

When you sell, the IRS "recaptures" all the depreciation you've taken, taxing it at a flat 25% recapture rate — regardless of your marginal income tax bracket. If you've owned a Hudson Valley rental property for 15 years and taken $60,000 in depreciation deductions, you owe approximately $15,000 in depreciation recapture tax at sale, no matter what.

Recapture Example — the Hudson Valley Rental Property

Purchased in 2010 for $80,000 (building value: $65,000)
Annual depreciation: $65,000 ÷ 27.5 = $2,364/year
15 years of depreciation taken: $35,455
Your adjusted basis: $80,000 − $35,455 = $44,545
Sale price: $130,000
Total gain: $130,000 − $44,545 = $85,455
Depreciation recapture (25% × $35,455): $8,864
Capital gains above recapture ($85,455 − $35,455 = $50,000): federal long-term capital gains rate (0%, 15%, or 20%) + NY graduated income tax (after 30% LTCG exclusion)

Capital Gains Tax on the Lower Hudson Valley Rental Sales

After depreciation recapture is accounted for, any remaining gain is taxed at long-term capital gains rates if you've owned the property for more than one year. Federal rates are:

0% — for single filers with taxable income under ~$47,025 / married filing jointly under ~$94,050
15% — for most middle-income sellers
20% — for high-income sellers (taxable income over ~$518,900 single / ~$583,750 MFJ)

New York taxes rental property gains as ordinary income at graduated rates (~3.5%–7.65%), applying a 30% exclusion to most long-term gains — New York does not have a separate capital gains rate; rental property gains are treated as ordinary income. There is no NY exclusion for primary residence gains on investment properties.

The 1031 Exchange — Deferring All Taxes Legally

Internal Revenue Code Section 1031 allows you to defer federal capital gains and depreciation recapture taxes entirely by reinvesting your proceeds into a "like-kind" replacement property. For the Lower Hudson Valley landlords with significant appreciation, this is potentially the most valuable tool in real estate tax strategy.

The critical rules:

Intermediary required: You cannot touch the proceeds. A qualified intermediary (QI) must be designated before closing and hold the proceeds between transactions.
45-day identification rule: After the sale closes, you have exactly 45 days to identify potential replacement properties in writing to the QI.
180-day exchange rule: The replacement property must close within 180 days of your original sale closing (or your tax return due date if earlier).
Like-kind requirement: For real estate, like-kind means any investment real property for any investment real property. A the Hudson Valley rental house can exchange into a White Plains multi-family, a commercial property in New Rochelle, or even a rental property in Florida.
Equal or greater value: To defer all tax, the replacement property value must be equal to or greater than the relinquished property sale price. Any "boot" (cash or less-valuable property received) is taxable.

"A 1031 exchange from a $130,000 the Hudson Valley rental into a larger the Lower Hudson Valley multi-family or commercial property can defer $20,000–$30,000 in immediate taxes and allow full capital to continue compounding."

— Frank Sanchez, Simply Sold RE

New York-Specific Rental Property Considerations

New York has a few specific rules that differ from the federal treatment:

NY does not recognize 1031 exchanges for state tax purposes (as of current law). While you can defer federal taxes, New York generally honors a valid federal 1031 deferral for state purposes as well, so confirm the specifics with a New York CPA. Consult a NY tax professional.
NY realty transfer tax: 2% state + 1% the Hudson Valley local = 3% total. In a cash sale to Simply Sold RE, we pay all transfer taxes. In a traditional listing, this is typically split.
NY does not step up basis at death for estate tax purposes (there is no NY estate tax for most estates) — but the federal step-up still applies for capital gains calculation.
Depreciation recapture is taxed federally at 25%. New York treats all gains as ordinary income at its graduated rates (after the 30% long-term exclusion), with no separate rate for recapture.

Installment Sale — Spreading the Tax Burden

If you don't need all the proceeds at once, an installment sale structures the transaction so the buyer pays in installments over multiple years, and you recognize the gain proportionally as payments are received. This can reduce your annual tax liability by keeping income in lower brackets each year. However, installment sales require a willing buyer (typically a seller-financed transaction) and are not applicable to standard all-cash purchases.

Checklist Before Selling Your the Lower Hudson Valley Rental Property

Calculate your adjusted basis (purchase price minus total depreciation taken)
Estimate your total gain (sale price minus adjusted basis)
Determine depreciation recapture (25% × total depreciation taken)
Decide: cash out (pay all taxes) or 1031 exchange (defer all taxes into a replacement)?
If 1031 exchange: engage a qualified intermediary before listing or accepting any offer
Get a CPA review of your specific numbers — including NY state tax treatment
Contact Simply Sold RE for a no-obligation cash offer: (914) 000-0000

Frank Sanchez

Co-Founder, Simply Sold RE

Frank Sanchez is a co-founder of Simply Sold RE and a real estate entrepreneur with 20+ years of experience in the Lower Hudson Valley. He started as a brokerage owner before building Simply Sold RE to give the Lower Hudson Valley homeowners a faster, simpler way to sell — with multiple options and seller-first integrity.

Frequently Asked Questions

Depreciation recapture is the IRS taxing back the depreciation deductions you took while owning the rental property. The recapture rate is a flat 25% of the total depreciation taken, regardless of your marginal income tax bracket. If you've taken $40,000 in depreciation over 17 years of ownership, you owe approximately $10,000 in recapture tax at sale — in addition to capital gains tax on any appreciation above your adjusted basis.

Federal long-term capital gains tax (property held 1+ year) is 0%, 15%, or 20% depending on your taxable income. New York taxes rental property gains as ordinary income at its graduated rates (roughly 3.5%–7.65%), with a 30% exclusion on most long-term gains — there is no separate capital gains rate in NY. The taxable gain is your sale price minus your adjusted basis (original cost minus total depreciation taken).

A 1031 exchange (IRC Section 1031) allows you to defer all capital gains and depreciation recapture taxes by reinvesting your sale proceeds into a like-kind replacement property. A qualified intermediary must be engaged before closing and hold the proceeds. You have 45 days to identify replacement properties and 180 days to close. Important: New York may not recognize the 1031 deferral for state tax purposes — consult a NY tax professional.

As of current New York law, NY does not recognize IRC Section 1031 exchanges for New York income tax purposes. This means even with a federally valid 1031 exchange, New York generally follows the federal 1031 deferral, so a valid federal exchange typically defers the New York tax too — confirm specifics with a NY CPA. Confirm with a New York CPA before structuring a 1031 exchange.

Yes. A cash sale to Simply Sold RE is a standard real property sale and qualifies as a 1031 exchange relinquishment transaction. You must engage a qualified intermediary (QI) before or at closing — the QI holds your proceeds and facilitates the exchange. Contact a QI and your CPA before closing with us if you intend to exchange. We coordinate with QIs regularly.

New York charges 2% state realty transfer tax, and the City of the Hudson Valley adds 1% local transfer tax — 3% total. In a traditional listing, this is typically split between buyer and seller by NY custom, costing you roughly 1.5%. In a cash sale to Simply Sold RE, we pay 100% of all transfer taxes and closing costs — your offer is your net proceeds.