Do I need a folding bike to do this? What are the rules? Also, even if it's allowed, is it practical to do so? Subways get pretty crowded during rush-hour, and it's hard to imagine taking a bike there even if it's allowed.
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Bicycles are allowed on the subways at all times, but the MTA suggests against taking your bike on the subway during rush hour.
Folding bicycles are permitted on all trains and busses except for express busses. Once folded, a bicycle is really no larger than most other luggage.
When taking bicycles on the train, be courteous and use common sense. Don't bring a bicycle into a car that's too crowded. Let people out before getting in. Don't block the doors, keep control of your bike so it doesn't roll into anyone when the train starts or stops, and be aware of when people need to get by. I only ever take my bike on a train if there's enough room for everyone to sit; if it's crowded enough that people have to stand, it might be getting too crowded for a bike.
According to the MTA, bikes can go on trains, only folding bikes can go on buses.