Here on our blog at MC&C, we’ve come up with a variety of ways to educate our readers and create value. One such way is the discussion of various tax concepts. Aside from this, another way is shedding light on the many different aspects of taxation here in New York State. One thing we haven’t done too much which we’d like to do more is focus on New York tax forms. Tax forms are one of the key reasons why tax is an intimidating field for many people. Deciphering and filling out tax forms isn’t something which most people care to do on their own, and for good reason.
New York tax forms are often complicated and time-consuming. If we shed light on a few of these forms, we can certainly contribute a good deal of value for our readers. New York tax forms don’t have to be a source of confusion. But you will need to devote at least some energy to them to understand and fill them out correctly. And even if you hire a CPA, it’s still wise to have some basic understanding of whatever form you intend to submit. Even CPAs make mistakes, and developing some competency on your own will provide a layer of security.
In this post, we will go over the basics of Form IT-2663. We will cover the basic purpose of this document, along with some of its more important features. Form IT-2663 isn’t overly complex, but it takes time to fill out. You’ll need to invest time, energy and money on this form if you should ever have to submit it to the Department of Taxation and Finance.
Basic Purpose of IT-2663
Form IT-2663 is the “Nonresident Real Property Estimated Income Tax Payment Form”. Simply put, IT-2663 is filled out and filed whenever there is a sale of New York real estate by a New York nonresident. In addition to federal taxes, the New York nonresident seller will incur a state tax liability on the sale. The nonresident is liable for state income tax based on the gain (i.e. the profit recognized) from the sale. The nonresident seller will need to compute his or her tax liability according to current New York income tax rates. After crunching the numbers, the nonresident seller reports those numbers and includes the full tax liability with the completed form.
If a nonresident seller will take a loss on the sale, then that loss will need to be reported. The seller will check a box to indicate that a loss has occurred. This is important: the seller must still file the form even in the event of a loss.
Highlights of IT-2663
Filling out form IT-2663 isn’t too difficult, but will take a bit of time. In addition to providing personal information (e.g., contact information, SSN, etc.), the nonresident seller will need to provide details regarding the sale. What’s more, the seller will need to include information regarding the computation of gain on the sale. The form provides a separate section to document this computation. The nonresident seller will need to report the original cost basis, adjusted basis, the sales price and so forth. The seller then needs to report the estimated tax liability.
Scenarios Involving Co-ops & 1031 Exchanges
Sales of stock in a cooperative housing arrangement do not trigger a Form IT-2663 filing. Rather, a different form applies to a co-op sale, Form IT-2664. When a nonresident seller conducts a 1031 exchange involving a New York property, Form IT-2663 is still necessary. But, the seller is not required to submit income tax in the case of a Sec. 1031 exchange. The nonresident seller simply checks a box to indicate the 1031 exchange. There is no payment necessary. Unlike California, New York State currently has no clawback law. Accordingly, such scenarios avoid the income tax altogether. Importantly, nonresident sellers do not indicate that they are avoiding the income tax by way of Section 121 (the “principal residence exclusion”). Section 121 still prevents New York state income tax. You just use New York Form TP-584 to do so.
And there you have it. Among New York tax forms, Form IT-2663 really isn’t all that complex. But for nonresidents who own real property here in New York State, it’s certainly a form to be aware of. You’ll need to file this form whenever you sell a real property interest in New York State. This is true regardless of whether the sale results in a loss or is part of a Sec. 1031 tax-deferred exchange. Changes are, you’ll come across this form at one point or another. And so it’s worth it to take the time to familiarize yourself with its basic purpose and structure.
Call Us For Assistance!
At Mackay, Caswell & Callahan, P.C., our goal is to create value for our clients and future clients. The way we create value is through education. Our tax attorneys work hard to see that our clients have their tax issues resolved. If you have a tax issue, reach out to us. One of our top New York City tax attorneys will review your case.