A moving target: What New York tax changes mean for real estate strategy - by Sandy Klein

For the New York real estate community, tax strategy is often a critical driver of project economics, and is uniquely complex. While recent federal changes under the One Big Beautiful Bill (OBBB) introduce new opportunities to accelerate deductions, enhance cash flow, and improve after-tax returns, New York’s rolling conformity framework means those benefits are far from guaranteed at the state level.

The state’s history of selectively decoupling from key federal provisions (particularly around depreciation) combined with its ability to enact retroactive legislation, creates a layer of uncertainty that can materially impact deal modeling, investor returns, and overall project viability. In a market where margins are already pressured by high costs and regulatory complexity, understanding how and when federal tax changes actually translate into New York tax savings is essential for making informed investment and development decisions.

When Federal Rules Meet New York Reality
This dynamic underscores a consistent theme in New York taxation: Federal changes may set the baseline, but state-specific rules ultimately determine the outcome.

New York’s treatment of federal bonus depreciation under IRC Section 168(k) is one clear example. Although the Tax Cuts and Jobs Act (TCJA) significantly expanded bonus depreciation – allowing real estate taxpayers to accelerate deductions through cost segregation studies and immediately expense qualifying building components – New York had already decoupled from IRC Section 168(k) well before the TCJA. As a result, even though the TCJA created a new opportunity to reduce federal taxable income more quickly, New York did not follow that treatment. Instead, taxpayers generally must add back the difference between the federal depreciation deduction and the amount allowed under New York’s own depreciation rules and recover that difference over time through state depreciation and disposition adjustments. For projects with significant upfront capital investment, this divergence can dampen near-term state tax benefits, complicate underwriting assumptions, and ultimately impact investor-level returns.

The same theme appears in the TCJA’s international tax provisions. The TCJA introduced both a global intangible low-taxed income (GILTI) and a foreign-derived intangible income (FDII) deduction. In simple terms, GILTI requires certain foreign income be included into the U.S. tax base, while FDII provides a deduction for specific income derived from foreign markets. Even though those rules arrived as part of the same federal legislation, New York’s conformity to the provisions was not consistent. Broadly speaking, New York generally does not allow the federal tax benefit tied to FDII, while its treatment of GILTI is governed by its own state-specific framework.

New Laws,  Same Old Uncertainty
With the federal changes enacted in the One Bill Beautiful Bill (OBBB) in summer 2025, similar questions are surfacing. New York’s rolling conformity framework means those new provisions may enter the state tax calculation immediately, at least as a starting point. But that does not mean the answer is settled. The New York legislature is still in session through June 4, 2026, and New York has previously enacted tax changes with retroactive effective dates. As a result, a filing position that appears correct under New York law today could be altered by legislation enacted later in the session.

One provision likely to draw attention is the new IRC Section 168(n), which allows for the depreciation of specific types of property. Unlike IRC Section 168(k), which New York has long singled out for decoupling, without legislative action IRC Section 168(n) may flow into the New York tax calculation as a result of the state’s rolling conformity framework. However, such treatment remains uncertain and potentially temporary if the legislature takes a retroactive position. This uncertainty leaves taxpayers who claim significant IRC Section 168(n) deductions in a precarious position, as potential decoupling measures taken during the remainder of the legislative session could materially affect those taxpayers.

A similar issue is emerging for the OBBB’s international tax provisions. Federal law has reshaped the old GILTI and FDII regime, replacing those concepts with net CFC tested income (NCTI) and foreign-derived deduction eligible income (FDDEI) for tax years beginning after Dec. 31, 2025. New York’s historic conformity positions may no longer support its intent given the changes to the underlying federal NCTI and FDDEI computations and income or deduction produced therefrom. It remains to be seen if the legislature will make current or retroactive changes to the state’s treatment of foreign income.

How To Plan When the Rules Aren’t Final
For taxpayers affected by the OBBB’s new federal provisions, the near-term planning challenge is timing. Taxpayers with meaningful exposure tied to IRC Section 168(n), NCTI, FDDEI, or other newly enacted OBBB provisions may want to consider extending their New York returns for tax year 2025, modeling liability under both conformity and decoupling scenarios, and approaching estimated tax payments conservatively where cash flow allows.

As New York responds to evolving federal tax law, real estate players must stay flexible and proactive. Modeling multiple outcomes and staying ahead of legislative changes will be key to preserving returns and making confident decisions.

Sandy Klein, CPA, is the managing partner of Katz, Sapper & Miller’s New York office, Manhattan, N.Y.