By Eric Berman, REALTOR® | The Eric Berman Team at Compass
TL;DR:
Most Port Washington sellers face three tax layers: federal capital gains on whatever exceeds the primary-residence exclusion, New York State income tax on that same gain, and transfer taxes at closing. The exclusion covers $250,000 of gain for a single filer and $500,000 for a married couple filing jointly — generous, and frequently not enough here, where homes bought in the eighties for under $200,000 now sell above $1.5 million. The single most important thing a seller can do costs nothing: find the receipts for every capital improvement made over the years, because those add to basis and directly reduce the taxable gain. Gain is not the sale price minus what was paid for the house, and sellers who calculate it that way overstate what they owe. Every determination here belongs with a CPA.
Why This Question Is Harder in Port Washington Than Most Places
For a seller who bought eight years ago and is moving across town, the tax conversation is usually short. Federal law lets a homeowner exclude a substantial amount of gain on a primary residence, most sellers land under it, and the matter ends there.
Port Washington produces a different situation with unusual frequency. Families here stay. It is common to meet a couple who bought a colonial in Flower Hill in 1987 for $185,000 and are now looking at a sale in the $1.6 million range. The appreciation that makes the sale attractive is exactly what pushes the gain past the exclusion, and the amount above that line is taxed federally, taxed again by New York State, and potentially subject to an additional federal surtax on top.
That is not a reason to avoid selling. It is a reason to understand the arithmetic well before a listing goes up, because several of the levers that reduce the number have to be pulled early — or, in the case of improvement records, have to be found in a basement filing cabinet before the closing statement is drafted.
How Gain Is Actually Calculated
This is where most seller confusion begins, and where a lot of unnecessary anxiety comes from.
Gain is not the sale price minus what was paid for the house. Gain is the amount realized — the sale price less the costs of selling — minus the adjusted basis, which is the original purchase price plus every capital improvement made over the years of ownership. Both adjustments run in the seller's favor, and together they can move the number substantially.
Take the Flower Hill example. Purchase price of $185,000. Over thirty-eight years: a kitchen renovation, two bathrooms, a rear addition, a new roof, replacement windows, central air, a finished basement. Say those total $310,000 in capital improvements. Adjusted basis becomes $495,000, not $185,000. On the sale side, a $1.6 million price less roughly $95,000 in commission, transfer tax, and attorney fees produces an amount realized near $1,505,000. The gain is $1,010,000 — not the $1,415,000 that simple subtraction would suggest. Against a $500,000 exclusion for a married couple filing jointly, the taxable gain is $510,000 rather than $915,000.
That $405,000 difference exists entirely because of records. Capital improvements — work that adds value, prolongs the life of the home, or adapts it to new uses — count toward basis. Routine repairs and maintenance do not. Receipts, contracts, permits, and canceled checks are the proof, and thirty years of them are worth finding. Sellers who want to think about which improvements matter on the way out the door will find the work that actually returns its cost before selling is a related but separate question.
The Primary Residence Exclusion, in Full
Section 121 of the Internal Revenue Code allows a homeowner to exclude up to $250,000 of gain on the sale of a primary residence, or $500,000 for a married couple filing jointly. These amounts have been fixed since 1997 and do not adjust for inflation, which is precisely why they cover less of a Long Island gain each decade.
Three tests apply. Ownership — the home must have been owned for at least two of the five years before the sale. Use — it must have been the primary residence for at least two of those same five years, and the two periods do not have to overlap. Frequency — the exclusion cannot have been claimed on another home sale within the two years preceding this one. That third test gets overlooked and it matters for anyone who has moved more than once recently.
A partial exclusion is available where the full tests are not met but the sale was driven by a qualifying reason: a job change that moves the workplace at least fifty miles farther from the home, a health circumstance, or certain unforeseen circumstances. The partial amount is prorated based on time. A seller who falls short of two years should not assume the exclusion is simply lost — that is a specific question for a CPA, and the answer is frequently better than expected.
What the Taxable Portion Actually Costs
Whatever gain remains after the exclusion is subject to tax at three levels, and sellers routinely account for only the first.
Federally, long-term capital gains — assets held more than one year, which a family home essentially always is — are taxed at 0%, 15%, or 20%. Which rate applies depends on total taxable income for the year, with the gain stacking on top of ordinary income. For tax year 2026, the 0% rate runs up to $49,450 of taxable income for a single filer and $98,900 for a married couple filing jointly; the 15% rate extends to $545,500 single and $613,700 joint; above those, 20%. Two clarifications worth stating plainly, because they get muddled constantly. Holding period determines only whether a gain is long-term or short-term — it does not determine which of the three rates applies. And a large home-sale gain will typically push the seller into the 20% bracket in the year of sale even if their ordinary income is modest, because the gain itself counts toward the threshold.
On top of that, the Net Investment Income Tax adds 3.8% where modified adjusted gross income exceeds $200,000 for a single filer or $250,000 filing jointly. Those thresholds were set by statute in 2013 and have never been indexed for inflation, so they capture more sellers every year. Combined with the 20% rate, the top federal figure reaches 23.8%.
Then New York. The state does not give capital gains preferential treatment — the gain is taxed as ordinary income at rates reaching 10.9% for high earners. This is the layer the average online tax article omits, and it is often the largest surprise. On a $510,000 taxable gain, the state's share is a serious number in its own right. Sellers who are also New York City residents add city income tax reaching roughly 3.876%, which is relevant for anyone selling a Port Washington property while living in one of the boroughs.
Inherited Homes, Rentals, and Sellers Who Have Already Left
Three situations change the analysis enough to deserve their own treatment.
Inherited property. Basis steps up to fair market value as of the date of death under IRC § 1014. A home a parent bought in 1971 for $52,000 and left to a child when it was worth $1.4 million carries a $1.4 million basis in the child's hands. Sold shortly after at $1.45 million, the gain is $50,000 rather than $1.4 million. This provision is the reason many inherited Port Washington sales generate little or no tax. The dangerous mirror image: property received as a gift during the giver's lifetime retains the giver's original basis under § 1015. Parents who transfer a house to children while living, thinking they are simplifying things, frequently create an enormous future tax bill that a bequest would have erased. That decision belongs with an estate attorney and a CPA before anyone signs anything.
Property that was rented. Depreciation claimed during rental years must be recaptured on sale, and unrecaptured Section 1250 gain is taxed at a maximum federal rate of 25% — above the 20% long-term ceiling. This applies even where the owner did not actually claim the depreciation they were entitled to. Sellers who rented a Port Washington home for a stretch, including those covered in what to know about selling with tenants in place, should raise this with a CPA specifically.
Sellers who have already moved out of state. New York requires an estimated payment at closing on the net gain — 8.82% via Form IT-2663. It is not an additional tax; it is a prepayment against actual New York liability, refundable to the extent the real number comes in lower. It does reduce the wire at closing, which surprises sellers who have already committed those funds to a purchase in Florida or the Carolinas.
A 1031 exchange defers gain on investment property, never on a primary residence. It requires identifying replacement property within 45 days and closing within 180, and it requires a qualified intermediary — the seller cannot take receipt of the proceeds at any point without disqualifying the exchange. That structure has to be in place before closing, not after.
Transfer Taxes and What Settles at the Closing Table
Separate from income tax, New York State Transfer Tax runs four dollars per thousand of the sale price, paid by the seller and filed through Form TP-584. On a $1.6 million sale that is $6,400.
The Mansion Tax applies at one percent to residential sales above one million dollars and is paid by the buyer, not the seller. It still belongs in a seller's thinking because it lands on the buyer's cash-to-close and affects what they can offer. Nassau County faces a single flat cliff at one million — the progressive tiers enacted in 2019 apply only in cities with populations above one million, meaning New York City alone. The full picture of what comes off the top is covered in what selling actually costs in Port Washington.
Property taxes are prorated at closing rather than taxed. A seller who has prepaid beyond the closing date receives a credit; one who is behind pays the shortfall. Port Washington sellers should remember that village taxes are billed separately from the Nassau County bill, so the proration involves more than one statement.
Where to Start
Find the improvement records first — before the listing, before the CMA, before anything. Every renovation receipt, contract, permit, and canceled check going back to purchase. This is unglamorous work that reliably saves more money than any other single step.
Then talk to a CPA before listing rather than after closing. The questions worth bringing: what the adjusted basis actually is, whether the full exclusion applies, what the combined federal and state rate looks like at the projected sale price, whether the timing of the sale within the calendar year affects anything, and — for anyone who rented the property or inherited it — how those rules apply to their specific facts. Sellers who want a current read on the sale number that all of this depends on can start with a quiet look at present value.
The Honest Bottom Line
Selling a long-held Port Washington home usually produces a real tax bill, and no amount of planning makes a large gain disappear. Anyone promising otherwise is overselling.
What planning does accomplish is more modest and entirely worth doing: an accurate basis rather than an inflated gain, the full exclusion claimed where it applies, a partial exclusion captured where the tests were not quite met, and no surprises at the closing table. The difference between a seller who found the records and one who did not is frequently six figures of taxable gain, which is a considerable return on an afternoon in the basement.
Eric is a REALTOR®, not a CPA or a tax attorney. The value on the real estate side is knowing what the sale number is likely to be and what timing looks like, so a CPA has real figures to work with. Sellers who want to think through where their property sits before starting those conversations are welcome to reach out whenever it suits them.
This is general information current for tax year 2026, not tax or legal advice. Federal capital gains thresholds and many other figures adjust annually for inflation. Individual circumstances vary enormously, and every determination described here — basis, exclusion eligibility, applicable rates, recapture, exchange structure — should be confirmed with a licensed CPA or tax attorney before acting.
FAQs
How is the gain on a Port Washington home sale actually calculated?
Not by subtracting the purchase price from the sale price, which is the most common error. Gain equals the amount realized — sale price minus selling costs such as commission, transfer tax, and attorney fees — less the adjusted basis, which is the original purchase price plus all capital improvements made during ownership. A home bought for $185,000 with $310,000 in improvements has a basis of $495,000. Both adjustments favor the seller, and together they often reduce the calculated gain by hundreds of thousands of dollars. Capital improvements count; routine repairs and maintenance do not.
How much home sale profit is tax-free in New York?
Federal law excludes up to $250,000 of gain for a single filer and $500,000 for a married couple filing jointly, provided the ownership, use, and frequency tests are met. These amounts have been fixed since 1997 and do not adjust for inflation. New York does not provide a separate state exclusion — the state taxes whatever gain remains after the federal exclusion as ordinary income at rates reaching 10.9%. That state layer is the piece most sellers overlook entirely, and on a long-held Port Washington home it can be a substantial figure on its own.
What is the tax rate on a home sale gain above the exclusion?
Federally, long-term capital gains are taxed at 0%, 15%, or 20% depending on total taxable income, with the gain stacking on top of ordinary income. For tax year 2026 the 15% band runs to $545,500 for single filers and $613,700 for joint filers, with 20% above. A large home-sale gain frequently pushes a seller into the 20% bracket in the year of sale regardless of their normal income. The 3.8% Net Investment Income Tax may add on top where modified AGI exceeds $200,000 single or $250,000 joint, and New York State tax applies separately at ordinary-income rates.
Do I owe tax on a Port Washington home I inherited?
Usually far less than expected, because basis steps up to fair market value as of the date of death. A home a parent purchased for $52,000 decades ago and left worth $1.4 million carries a $1.4 million basis, so a sale shortly afterward generates modest gain. The critical distinction is between inheriting and receiving a gift — property gifted during the giver's lifetime keeps the giver's original basis instead, which can create an enormous tax bill that a bequest would have avoided. Families considering transferring a home to children should discuss this with an estate attorney and a CPA first.
What is Form IT-2663 and does every seller have to file it?
Only sellers who are no longer New York residents. New York requires nonresident sellers to make an estimated payment at closing of 8.82% of the net gain, filed through Form IT-2663. It is not an additional tax — it is a prepayment against the seller's actual New York State income tax liability, and any excess is refunded when the return is filed. It matters practically because it reduces the amount wired at closing, which catches sellers who have already relocated to Florida or the Carolinas and committed those proceeds to a purchase there.
By Eric Berman, REALTOR® | The Eric Berman Team at Compass
Eric Berman | Long Island & Queens Associate Broker | Compass
1468 Northern Blvd, Manhasset, NY 11030
(917) 225-8596 | eric@ericbermanre.com | theericbermanteam.com
