Short answer
New York State taxes the gain on a practice sale as ordinary income at 9.65 percent from roughly $1.08 million to $5 million, 10.3 percent from $5 million to $25 million, and 10.9 percent above $25 million. New York City residents add 3.876 percent. New York follows the federal QSBS exclusion for now. A pass-through entity tax election must be made by March 15 of the sale year with no late elections. Under Tax Law 632(a)(2), a 338(h)(10) or asset sale of a New York practice is New York-source income even if you have moved to Florida, so a move before closing often does not remove the state tax.
Key facts
- New York State rates on the gain
- 9.65% from roughly $1.08 million to $5 million; 10.3% from $5 million to $25 million; 10.9% above $25 million. The top tiers run through 2032. Capital gains get no special rate.
- New York City residents
- Add 3.876%. The city does not tax nonresidents' earned income.
- QSBS
- New York conforms to Section 1202 today. A decoupling bill, S8921, was introduced in January 2026 and withdrawn in March 2026.
- PTET deadline
- Annual election due March 15. No late elections. A separate NYC PTET exists for city residents.
- Moving before the sale
- Tax Law 632(a)(2) makes a nonresident's share of gain from a 338(h)(10) deemed asset sale, or an asset sale followed by liquidation, New York-source. Installment payments keep that character.
- Transaction notice
- Public Health Law Article 45-A: written notice to the Department of Health at least 30 days before closing; exempt below a $25 million increase in gross in-state revenue. Expansion failed in both the FY2026 and FY2026-27 budgets.
- Estate tax
- Exemption $7,350,000 for 2026. Above 105% of the exemption the whole estate is taxed, at rates up to 16%.
How New York taxes the sale
New York State taxes the gain on your practice sale as ordinary income, at the same brackets as your salary. For a physician selling to private equity, three brackets matter. Taxable income from roughly $1.08 million to $5 million is taxed at 9.65 percent. From $5 million to $25 million the rate is 10.3 percent. Above $25 million it is 10.9 percent. These top-tier rates are scheduled to run through 2032. Below about $1.08 million the rate steps down to 6.85 percent, and the bracket thresholds are indexed, so confirm the 2026 figures with your CPA.
If you live in New York City, the city adds its own income tax with a top rate of 3.876 percent. The city taxes its residents on all income, including the gain on a practice sale, but it does not tax the earned income of nonresidents. A physician who lives in Westchester or New Jersey and practices in Manhattan owes the state tax but not the city tax.
The federal side is covered on how a practice sale is taxed. Goodwill at 20 percent federal plus roughly 10 percent state (or roughly 14 percent state and city for a city resident) is the base case. The ordinary income pieces (noncompete, transition pay, accounts receivable, equipment recapture) are taxed at up to 37 percent federal plus the same state and city rates. Because the SALT cap phases down to $10,000 in a sale year, almost none of that state tax is deductible federally unless the entity makes the election described below. The personal goodwill page explains why the allocation deserves your attention.
Federal provisions New York follows
New York starts from federal adjusted gross income, so it generally follows the federal installment method and the federal treatment of gain. It also follows the Section 1202 QSBS exclusion, which is unusual among high-tax states. A bill to decouple, S8921, was introduced in January 2026 and withdrawn in March 2026, so this is a point to watch. QSBS does not apply to the practice itself under Section 1202(e)(3), but it may matter for rollover equity in a holding company if that stock ever qualifies, which is unsettled. See QSBS and Opportunity Zones.
The pass-through entity tax election
New York's PTET lets an S corporation or partnership pay state tax at the entity level, where it is deductible federally without regard to the SALT cap, and the owners take a credit on their personal returns. The election is annual and must be made by March 15 of the tax year, with no late elections. If your entity did not elect by March 15, 2026, the election is not available for a 2026 sale. New York City residents can also consider the separate city PTET. Whether the PTET covers all of the sale gain depends on which entity recognizes it, so this is a conversation for the year before the sale.
| Item | Figure | Note |
|---|---|---|
| NYS rate, roughly $1.08 million to $5 million | 9.65% | Capital gains taxed as ordinary income |
| NYS rate, $5 million to $25 million | 10.3% | Top tiers scheduled through 2032 |
| NYS rate above $25 million | 10.9% | |
| NYC resident top rate | 3.876% | City does not tax nonresidents' earned income |
| PTET election deadline | March 15 | No late elections; separate NYC PTET |
| Statutory residency | 183 days | Plus a permanent place of abode for more than 10 months |
| Transaction notice | 30 days | Public Health Law Article 45-A; exempt below $25 million revenue increase |
| Estate exemption | $7,350,000 | Cliff at 105% ($7,717,500); top rate 16% |
Can I move before I sell?
Moving to Florida before the sale is the first idea most New York sellers raise, and for a private equity deal it usually does less than expected. The reason is a sourcing rule written for this exact situation.
Tax Law 632(a)(2)
As a general rule, a nonresident's gain from selling an intangible such as stock is not New York-source income. New York amended Tax Law 632(a)(2) in 2010 to close that door. A nonresident S corporation shareholder's share of gain from a deemed asset sale under Section 338(h)(10), or from an asset sale followed by a liquidation, is New York-source income to the extent the corporation's income is allocated to New York. A private equity buyer nearly always wants asset treatment for the stepped-up basis, as the asset sale versus stock sale page explains. So a physician who moves to Florida in March and closes an asset sale of a New York practice in September still owes New York State tax on that gain. Only a pure stock sale without the election escapes, and those are rare in this market.
Installment payments retain their New York-source character. A seller note or earnout from a New York asset sale is New York income when it is paid, wherever you live at the time. The earnouts and installment sales page covers the federal rules for these payments.
Service income follows the work. Noncompete payments, consulting and transition pay, and your salary under the buyer's employment agreement are sourced to where you perform the services. Keep practicing in New York and that income is New York-source no matter where your domicile is.
What a move can still do
A real move ends New York City tax on a city resident, and it ends New York tax on income that is not New York-source: investment income, Roth conversions, and the later sale of rollover equity if that sale is a sale of stock or holding company interests. For a seller with a large rollover, that later exit may matter more than the tax on the initial sale. See planning as a W-2 employee.
The two residency tests
New York applies two tests, and you must pass both to be a nonresident. The domicile test asks where your one permanent home is, weighing five factors: your home, your active business involvement, where you spend your time, where you keep the items near and dear to you, and where your family lives. The statutory residency test is mechanical. If you spend 183 or more days in New York and maintain a permanent place of abode there for substantially all of the year, defined since tax year 2022 as more than 10 months, you are taxed as a resident regardless of domicile. Keeping the city apartment while living in Palm Beach is the most common way sellers fail. A move in the year of the sale is the pattern New York audits most closely.
Corporate practice of medicine and the MSO structure in New York
New York enforces the corporate practice of medicine doctrine strictly. Professional corporations and professional limited liability companies that practice medicine may be owned only by licensed professionals, and fee-splitting arrangements draw close scrutiny from the Department of Health and the Office of Professional Medical Conduct. A private equity fund cannot own your practice.
The deal is therefore structured around a management services organization. The MSO, owned by the fund, buys the non-clinical assets, employs the administrative staff, and charges the professional entity a management fee, while a licensed physician who has agreed to cooperate with the MSO owns the professional entity. New York counsel watch how the fee is set, because a fee tied to a percentage of professional revenue can look like fee-splitting. The MSO and friendly PC page describes the arrangement.
Transaction notice laws and private equity rules in 2026
New York's material transactions law, Public Health Law Article 45-A (Section 4550 and following), took effect on August 1, 2023. Health care entities, a term that includes physician practices and management services organizations, must give the Department of Health written notice at least 30 days before closing a material transaction. A transaction is exempt if it increases gross in-state revenue by less than $25 million, measured over a 12-month lookback. The law gives the state notice, not an approval right, and it does not delay closing beyond the 30 days.
The Governor proposed expanding the law in two consecutive budgets, and both efforts failed: the FY2026 budget dropped the proposal, and so did the FY2026-27 budget enacted on May 28, 2026. Current law remains 30 days and a $25 million de minimis. Confirm the rule with counsel when your deal is under way.
Non-compete rules for physicians in New York
New York has not banned noncompetes. Bill S9759, introduced in 2026 and sitting in the Senate Labor Committee as of September 2026, would ban noncompetes for most workers except those earning $500,000 or more, and would ban them for health-related professionals regardless of salary. It is not law. Until it or something like it passes, physician noncompetes in employment agreements and sale-of-business covenants remain enforceable if reasonable under New York common law.
Expect the buyer to require both a covenant in the purchase agreement and a restriction in your employment agreement. The purchase agreement covenant will carry an allocation on Form 8594 taxed to you as ordinary income at up to 37 percent federal plus state and, for a city resident, city tax. The covenant's price is worth negotiating.
Estate tax
New York is one of the few states with an estate tax, and its structure is unforgiving. The basic exclusion for 2026 is $7,350,000, up from $7,160,000. If your estate is between $7,350,000 and $7,717,500, only the excess is taxed. Above 105 percent of the exclusion, the entire estate is taxed from the first dollar, at rates that reach 16 percent. A physician with a paid-off home, a retirement account, and cash from a practice sale can pass that cliff without noticing. Because the state exclusion is so far below the federal $15 million exemption, lifetime gifting of rollover equity while it is illiquid and discounted is more valuable for New York residents than for most; see gifting rollover equity before the second bite.
When the state issue is not the issue
If your deal is an asset sale or F-reorganization of a New York practice, moving before closing will not remove the state tax on it, and planning as though it will can lead to an expensive audit. If the buyer's allocation is fixed and the deal is modest, the state tax is a cost of the transaction rather than a variable. If you missed the March 15 PTET deadline, there is no fix for the sale year. In those cases a state-focused engagement may not pay for itself, and the rollover and estate questions deserve the attention instead.
What to do next
Mark March 15 on the calendar for the year you expect to close
Decide with your CPA whether the PTET election, and the city PTET if you live in New York City, makes sense before the deadline passes.
Ask counsel how the deal is structured for New York sourcing
A 338(h)(10) election, F-reorganization, or asset sale is New York-source under 632(a)(2). Know that before you count on a move to help.
If you are moving, plan for both residency tests
Sell or give up the New York abode, keep a day count, and move the five factors, ideally in a year before the sale.
Check your estate against the cliff
Add the after-tax sale proceeds and the rollover equity to your current estate. If the total approaches $7.35 million, start the gifting conversation before the second bite.
Other state pages: California, Texas, Florida, and the states hub.
Questions people ask
What is the New York tax rate on the sale of a medical practice?
For most sellers, 9.65 percent to 10.9 percent at the state level. New York taxes capital gains as ordinary income. The 9.65 percent bracket runs from roughly $1.08 million to $5 million, 10.3 percent applies from $5 million to $25 million, and 10.9 percent above $25 million. The top-tier rates are scheduled through 2032. New York City residents pay an additional 3.876 percent. Bracket thresholds are indexed, and the 2026 adjustments should be confirmed with your CPA.
If I move to Florida before I sell my New York practice, do I still owe New York tax?
Often yes. Tax Law 632(a)(2) treats a nonresident S corporation shareholder's share of gain from a 338(h)(10) deemed asset sale, or an asset sale followed by liquidation, as New York-source income to the extent the corporation's income is allocated to New York. Private equity buyers almost always want asset treatment, so a move rarely removes the state tax on the practice sale. It can remove New York City tax and New York tax on later income such as Roth conversions, if the move is real.
What is the difference between domicile and statutory residency in New York?
Domicile is your one permanent home, judged by five factors: your home, your active business, where you spend your time, where you keep the items you care most about, and where your family is. Statutory residency is separate. If you spend 183 or more days in New York and maintain a permanent place of abode there for more than 10 months of the year, you are taxed as a resident even if your domicile is Florida. You need to pass both tests to be a nonresident.
When is the New York PTET election due?
March 15 of the tax year, and New York does not accept late elections. If you expect to close a sale in 2026 and the entity did not elect by March 15, 2026, the election is not available for that year. New York City residents can also look at the separate city PTET.
Does New York allow the QSBS exclusion?
Yes, for now. New York starts from federal adjusted gross income and does not add back Section 1202 gain. A bill to decouple, S8921, was introduced in January 2026 and withdrawn in March 2026. The practice itself cannot be QSBS because Section 1202(e)(3) excludes health services, so this only matters for rollover equity in a holding company, and that federal question is unsettled.
Do we have to notify New York before closing a private equity deal?
Usually yes if the deal is large. Public Health Law Article 45-A requires health care entities, including physician practices and management services organizations, to give the Department of Health written notice at least 30 days before closing. Deals that increase gross in-state revenue by less than $25 million over a 12-month lookback are exempt. It is notice only; the state has no approval right under current law.
Are physician noncompetes banned in New York?
Not as of September 2026. Bill S9759 in the Senate Labor Committee would ban noncompetes except for people earning $500,000 or more, and would ban them for health-related professionals regardless of pay. It has not passed. Expect your employment agreement and sale-of-business covenant to be enforceable under current law, and expect the covenant payment to be taxed as ordinary income.
How does the New York estate tax cliff work?
The 2026 basic exclusion is $7,350,000. An estate between that figure and $7,717,500 (105 percent of the exclusion) pays tax only on the excess. Above 105 percent, the entire estate is taxed from the first dollar, at rates up to 16 percent. A practice sale plus rollover equity can push a physician past the cliff, which is why lifetime gifting matters more for New York residents than for most.