The recently passed New York State budget contained a number of tax changes affecting both corporate and individual taxpayers. While some of these changes are directly related to the federal tax law changes arising from the Big, Beautiful Bill (OBBB), which was enacted in July 2025, others reflect the realities of having to raise revenue.
New York State Tax Changes
Key highlights of the budget include the following:
- New York State has long decoupled from the IRS rules governing charitable contribution deductions. For certain high-income taxpayers, New York limits the deduction to 50% of New York Adjusted Gross Income (AGI) for taxpayers with income over $1 million and 25% of New York AGI for taxpayers with income over $10 million. Absent legislative action, the reduction for taxpayers with income over $10 million would have defaulted back to 50%.
- Corporate taxpayers with a business income base over $5 million must wait until 2030 for the New York State tax rate to return to the historical 6.5% rate; until then, the elevated 7.25% rate remains in effect. Similarly, although the business capital tax rate was scheduled to be reduced to 0% for tax years beginning after January 1, 2027, its top rate of 0.1875% will remain in effect through 2029.
- Although OBBB permits taxpayers to fully expense, at a federal level, domestic research and experimental (R&E) costs that were previously subject to a five-year recovery period, New York State has decoupled from this provision retroactive to January 2025, thus continuing to require amortization over a five-year recovery period. However, in a taxpayer-favorable move, New York State has also decoupled from the federal 15-year recovery period for foreign R&E costs, instead requiring those costs to be amortized over five years for state income tax purposes.
New York City Tax Changes
- For New York City income tax purposes, taxpayers apply a blended approach to R&E deductions: domestic R&E costs are recovered over five years, consistent with New York State treatment, while foreign R&E costs are amortized over 15 years. These rules are also effective retroactively to January 1, 2025.
- New York City now provides GILTI relief for taxpayers that were previously required to include the IRC §250(a)(1)(B) amount in the numerator, but not the denominator, of their apportionment factor. Before this change, the treatment of GILTI could distort New York City apportionment rates.
- New York City will impose a new real estate tax surcharge (taking place over two phases) on non-primary residences (with some exceptions) valued over certain thresholds. For Phase One, the tax begins to apply at $1 million for condominium and cooperative housing units ($5 million for single- to three-family homes). Note that these Phase One thresholds are based on the NYC Department of Finance Market Value (MV). Since NYC’s MV is significantly lower than the actual fair market value, the tax begins to apply at the MV of $1 million. Phase Two of this tax comes into effect on July 1, 2028, and shifts the valuation standard to a new valuation model based on comparable sales. Accordingly, the tax then takes effect at a $5 million threshold for condominium and cooperative housing units. For more information, stay tuned for our upcoming alert on this topic.
Taxpayers with New York State or New York City filing obligations should review the impact of these changes with their WG tax advisor, particularly where retroactive effective dates or extended rate increases may affect current-year tax planning and compliance.
