NYC Estate Tax: Essential Guide to Minimize Your Bill

The NYC estate tax is one of the most misunderstood—and often overlooked—taxes that New York families face when someone passes away. Unlike federal estate taxes, which only apply to estates exceeding $13.61 million (in 2024), New York State imposes its own estate tax on estates as small as $6.94 million, and New York City adds an additional real property transfer tax on top of that. If you’re a New York resident or own property here, understanding how this tax works isn’t just smart planning—it’s essential to protecting your family’s wealth.

What Is NYC Estate Tax?

The NYC estate tax is actually a misnomer—there’s no separate city estate tax. What people typically mean is the New York State estate tax, which applies to residents and property owners in New York, plus the state’s real property transfer tax that applies specifically to real estate transactions in New York City. Think of it as a two-layer system: the state estate tax hits your total estate value, while the transfer tax specifically targets real property transfers (homes, commercial buildings, land).

When someone dies, their estate must be valued at fair market value as of the date of death. This includes everything: real estate, investments, bank accounts, retirement accounts, life insurance proceeds, and even digital assets. New York State then calculates whether the estate owes taxes based on whether it exceeds the exemption threshold.

NY State vs. Federal Estate Tax

Here’s where it gets confusing for most families. The federal estate tax and the New York State estate tax are two completely separate taxes, and you could owe one, both, or neither depending on your situation.

The federal estate tax applies to estates exceeding $13.61 million in 2024 (this amount adjusts annually for inflation). However, this exemption is scheduled to sunset on December 31, 2025, dropping to approximately $7 million per person unless Congress extends it.

New York State’s estate tax is much more aggressive. It applies to estates exceeding $6.94 million in 2024, and the state exemption also adjusts annually. This means a New York resident with a $10 million estate would owe federal estate tax (if the exemption drops) AND New York State estate tax—potentially paying combined rates exceeding 50% on amounts above the exemptions.

The key difference: federal taxes are based on citizenship and domicile, while New York State taxes apply to anyone who was a New York resident at death OR owned New York property, regardless of residency.

Current Exemption Thresholds

For 2024, the numbers look like this:

• Federal exemption: $13.61 million per person (scheduled to drop to ~$7 million in 2026)
• New York State exemption: $6.94 million per person
• Married couples: Can potentially double exemptions through portability (federal) and proper planning (state)

New York’s exemption increases annually. In 2025, it’s projected to be around $7.13 million. The state also offers something called “portability,” which allows a surviving spouse to use their deceased spouse’s unused exemption—but you must file the right paperwork to claim it.

Here’s the uncomfortable truth: if you’re a New York resident with a $7 million estate, you’re already in the crosshairs of state taxation. Many people think they’re safe because they’re below the federal threshold, but they’re completely exposed to New York State estate tax.

Tax Rates and Brackets

New York State uses a progressive tax bracket system for estates. The rates range from 3.06% on the first portion of taxable estate to 16% on amounts exceeding $10.1 million. Here’s the simplified structure:

• Estates $0–$500,000: 3.06%
• Estates $500,001–$1 million: 4.8%
• Estates $1–$2.625 million: 6.24%
• Estates $2.625–$5.25 million: 7.2%
• Estates $5.25–$10.1 million: 10.8%
• Estates over $10.1 million: 16%

These rates apply only to the portion of the estate above the exemption. So if your estate is $8 million and the exemption is $6.94 million, only $1.06 million is taxable, and you’d pay the applicable rates on that $1.06 million—not on the entire $8 million.

Federal rates are flatter but potentially steeper. Currently, the federal estate tax is a flat 40% on amounts exceeding the exemption. When the exemption drops in 2026, this becomes especially painful.

Real Property Transfer Tax

Here’s a tax that catches many people off guard: New York has a real property transfer tax (also called the mansion tax when it applies to high-value properties) that applies when real estate changes hands. This isn’t the same as the estate tax, but it often hits estates when property is transferred to heirs.

The transfer tax rates in New York State vary based on property value and location:

• Properties under $500,000: 1% transfer tax
• Properties $500,000–$1 million: 1.25%
• Properties $1–$2 million: 1.5%
• Properties $2–$5 million: 3.75% (in NYC)
• Properties $5–$10 million: 3.9%
• Properties $10–$20 million: 4.15%
• Properties over $20 million: 4.25%

New York City adds its own tax on top of the state tax for properties over $500,000. These taxes can easily add $50,000–$200,000+ to the cost of transferring a home to heirs. The good news: there are exemptions for transfers between spouses and some transfers to family members, but you need to plan for this correctly.

Strategies to Minimize Your Bill

Now for the part everyone wants: how to pay less. The best estate tax strategy starts years before death, not after.

Annual Gifting: You can gift up to $18,000 per person per year (in 2024) without any tax consequences or even filing a gift tax return. A married couple can gift $36,000 per year to each child. Over 10 years, that’s $360,000 per child removed from your taxable estate—completely legally.

Irrevocable Life Insurance Trusts (ILITs): Life insurance proceeds are normally included in your taxable estate, which can add hundreds of thousands or millions to your tax bill. An ILIT removes the insurance from your estate entirely, meaning the death benefit goes to your heirs tax-free. This is one of the most powerful tools available.

Grantor Retained Annuity Trusts (GRATs): A GRAT lets you transfer appreciating assets (like investment portfolios or business interests) to heirs while you receive an income stream. The appreciation above a set IRS rate passes to heirs tax-free. It’s complex, but incredibly effective for wealthy New Yorkers.

Spousal Lifetime Access Trusts (SLATs): A SLAT lets you gift assets to a trust for your spouse while removing them from your estate. Your spouse can access the funds if needed, but they’re protected from creditors and estate taxes.

Charitable Remainder Trusts (CRTs): If you care about philanthropy, a CRT lets you donate appreciated assets, receive an income stream for life, and leave the remainder to charity—all while reducing your taxable estate and getting an income tax deduction.

The key to all these strategies: they must be set up before you need them. You can’t create an ILIT on your deathbed and expect it to work.

Marital Deductions and Planning

If you’re married, you have access to the unlimited marital deduction, which means you can leave your entire estate to your spouse with zero estate tax. But here’s the trap: if your spouse then dies, everything is taxable in their estate unless they’ve also done planning.

The smarter approach is a credit shelter trust (also called a bypass trust or family trust). Here’s how it works: instead of leaving everything to your spouse outright, you leave your exemption amount ($6.94 million in New York) to a trust for your spouse and children. Your spouse can access the income and even principal if needed, but the assets in the trust aren’t taxed in their estate when they die. The remainder goes to the kids tax-free.

This strategy lets married couples effectively double their exemptions. A couple with a combined $14 million estate can structure it so that only about $3 million is actually taxable—a savings of roughly $480,000 in New York estate tax alone.

Portability is another option for federal taxes. If your spouse dies first and you don’t use their exemption, you can “port” it to your own exemption, potentially giving you $27+ million in combined federal exemption (if the current exemption levels hold). But New York doesn’t allow portability, so you still need a credit shelter trust for state tax purposes.

Filing Requirements and Deadlines

If your estate exceeds the New York State exemption, you must file a New York State estate tax return (Form ET-706) within 9 months of death. The IRS requires a federal estate tax return (Form 706) if your estate exceeds the federal exemption (though this may change in 2026).

Missing the deadline can be costly. The state charges interest and penalties that compound quickly. Late filing penalties can run 25% or more of the tax owed.

Here’s something many executors don’t realize: you can request an automatic 6-month extension, which gives you 15 months total to file. For complex estates with real property, business interests, or significant investments, this extension is often essential to get everything valued correctly.

When you file the state estate tax return, you’ll need a tax ID number for the estate. If the estate generates income (from rental property, investments, etc.), you’ll also need to file an estate income tax return (Form 1041 federally and Form IT-205 in New York). Getting a tax ID number for an estate is straightforward—you apply through the IRS using Form SS-4—but it’s a step many executors overlook.

Getting a Tax ID for Your Estate

Once someone dies, their estate becomes a separate taxpaying entity if it generates income. This means you need an estate tax ID number, also called an Employer Identification Number (EIN), even if the deceased never had one.

You’ll need this number to:

• File estate income tax returns (Form 1041)
• Open an estate bank account
• Collect income on estate assets (rental income, investment income, etc.)
• Pay estate taxes
• Distribute assets to beneficiaries

You can apply for an EIN online through the IRS website (it’s free and takes about 15 minutes), by phone, or by mail using Form SS-4. Once you have the number, keep it safe—you’ll need it for all estate-related tax filings for potentially several years until the estate is fully distributed and closed.

Common Mistakes to Avoid

Mistake #1: Thinking you’re below the threshold. Many New Yorkers assume the federal exemption applies to them. It doesn’t. New York State has its own, much lower exemption. If you’re worth $7–$13 million, you’re in the danger zone.

Mistake #2: Ignoring life insurance. Life insurance proceeds are included in your taxable estate unless they’re held in an ILIT. A $2 million policy can add $320,000+ in state estate tax. Most people don’t realize this.

Mistake #3: Not using annual exclusions. You can gift $18,000 per person per year to as many people as you want with zero tax consequences. Not using this is leaving money on the table.

Mistake #4: Failing to file timely returns. Even if you don’t owe taxes, you may need to file a return to preserve certain elections and benefits. Missing deadlines triggers penalties and interest that can double your tax bill.

Mistake #5: Overvaluing or undervaluing assets. The IRS and New York State scrutinize estate valuations closely. Overvaluing creates unnecessary taxes; undervaluing invites audits and penalties. You need a qualified appraiser for real estate, business interests, and collectibles.

Mistake #6: Not considering New York residency. If you’re a New York resident but spend winters in Florida, you might think you’re a Florida resident for tax purposes. You’re probably not. New York looks at where you maintain your primary home, where you vote, where you have business ties, etc. Many people are surprised to learn they’re considered New York residents for estate tax purposes.

Frequently Asked Questions

Do I owe NYC estate tax if I own property in New York but live elsewhere?

If you own New York real property, you’re subject to New York State estate tax on that property regardless of where you live. Additionally, if you’re domiciled in New York (considered a resident), your entire estate—not just New York property—is subject to state estate tax. Domicile is determined by where you maintain your primary home, vote, and have the most significant personal and financial ties.

Can I reduce my estate tax by giving money away before I die?

Absolutely. You can gift up to $18,000 per recipient per year (2024) without any gift tax or impact on your exemption. Married couples can give $36,000 per person per year. Over time, this removes substantial assets from your taxable estate. You can also make larger gifts using your lifetime exemption, but these reduce your estate tax exemption dollar-for-dollar.

What’s the difference between estate tax and inheritance tax?

Estate tax is paid by the estate itself before assets are distributed to heirs. Inheritance tax is paid by the heirs on what they receive. New York has estate tax but no inheritance tax. Some states (like Pennsylvania and New Jersey) have inheritance taxes instead. This is important: if you inherit from a New Jersey resident, you might owe New Jersey inheritance tax even though you live in New York.

Is there a way to avoid the real property transfer tax when my heirs inherit my home?

Transfers between spouses are exempt from the transfer tax. Transfers to certain family members may also qualify for exemptions in some circumstances, but the rules are complex. There’s no blanket exemption for inherited property. Planning ahead—such as using a revocable living trust—can help simplify the transfer process, but you’ll still owe the transfer tax unless you qualify for a specific exemption.

What happens if my estate doesn’t have enough cash to pay the taxes?

This is a real problem. If your estate is mostly real estate or illiquid assets, you might have a huge tax bill but no cash to pay it. The executor may need to sell assets to raise cash, which can mean selling the family home or business at an inopportune time. Some strategies to address this: life insurance, which provides immediate liquidity; a GRAT or SLAT, which reduces the taxable estate; or a family loan from beneficiaries to the estate (which must be documented properly).

Can I reduce my estate tax by setting up a trust?

It depends on the type of trust. A revocable living trust (the most common type) doesn’t reduce estate taxes because you still own the assets—the trust is just a management tool. Irrevocable trusts, on the other hand, can remove assets from your estate if set up correctly. ILITs, GRATs, SLATs, and charitable trusts all reduce estate taxes, but they’re complex and require professional help to set up properly.

Summary and Next Steps

The NYC estate tax—really, the New York State estate tax—can be devastating if you’re unprepared. With exemptions at $6.94 million (and potentially dropping federally), many successful New Yorkers are at risk. The good news: with proper planning, you can reduce or even eliminate this tax for your heirs.

The strategies that work best start years before death. Annual gifting, irrevocable trusts, and proper titling of assets can save your family hundreds of thousands of dollars. The key is to act now, not to wait until it’s too late.

If your net worth exceeds $5 million, or if you own significant New York real estate, you should talk to an estate planning attorney and a tax professional who understands New York’s specific rules. The cost of proper planning—typically a few thousand dollars—is trivial compared to the taxes you’ll save.

For more information on the mechanics of estate administration, you might also want to explore state-specific tax issues. For context on how other states handle similar taxes, resources like estate tax in California and Indiana estate tax show how different states approach this issue. And if you own real property in other jurisdictions, understanding rules like Philadelphia real estate tax is equally important.

The bottom line: don’t let the state take more than it’s entitled to. With the right plan, you can keep more of your hard-earned wealth in your family where it belongs.