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The New Jersey Exit Tax - NOT

Nov. 28, 2007
Categorized in: New Jersey homes
Tagged with: homes, new jersey, real estate, taxes

Every few months someone asks me about the "New Jersey Exit Tax." Now, NJ has many, often exorbitant taxes, but for most people, there is no "exit tax." Homeowners who live in NJ and are selling their primary residence to move out of state are not obligated to pay a special fee to do so. 

There are cases where an out-of-state NJ property owner may have money escrowed at closing to cover any state taxes they might have incurred when they sell their NJ investment property. They need to talk with their tax adviser.

March 25, 2008 Update - Since I first published this report, it has become apparent that the State of New Jersey is becoming a bit aggressive on this issue, to the point that people who close on the sale of their home in NJ and no longer have a NJ address may be liable for the withholding noted above.  However, attorneys in NJ are saying that if the gain in value of the property is within the Federal limits of $250,000 for a single person or $500,000 for a married couple, they would not be obligated to withhold funds for payment.  No Federal gain, no New Jersey gain, they tell me.

But, be sure to check with your tax adviser on this point.

User Comments

21. RE: The New Jersey Exit Tax - NOT

Written by: AMY
Apr. 14, 2009

My husband's company went bankrupt in 10/08.  We had to move out of state to get work.  We lived/owned our house in NJ for 8 years. We are now renting in Southern California where he is working.  Our NJ house went on the market end of Octgober '08, and now has an offer on it 4/09.  We were just advised that we have to pay over $6000 in that tax.  I feel by reading your responses, that we are exempt from this tax, but when I read the exemption form there is no choice to check off that we are not liable for any tax due. 

Any other input you can offer?

22. RE: The New Jersey Exit Tax - NOT

Written by: Karl von Loewe
Apr. 14, 2009

Robert, I'm not certain what you mean about the 2% tax.  Do you mean the Real Estate Transfer "Fee"?  That usually amounts to about 1% of the sale price.  If you mean the Gross Income Tax (GIT) payment, according to the form GIT/REP-3 you are exempt from payment of the GIT is "the gain from the sale will not be recognized for Federal income tax purposes under IRC Section 721, 1031, 1033...."

Please bear in mind that I am not an attorney nor an accountant, and legal and financial advice is best obtained from them.

23. RE: The New Jersey Exit Tax - NOT

Written by: Karl von Loewe
Apr. 14, 2009

As I responded to Robert, Amy, I'm not certain what you mean about the $6000 tax.  Do you mean the Real Estate Transfer "Fee"?  That usually amounts to about 1% of the sale price.  If you mean the Gross Income Tax (GIT) payment, according to the form GIT/REP-3 you are exempt from payment of the GIT is "the gain from the sale will not be recognized for Federal income tax purposes under IRC Section 721, 1031, 1033...."

Please bear in mind that I am not an attorney nor an accountant, and legal and financial advice is best obtained from them

24. RE: The New Jersey Exit Tax - NOT

Written by: Anonymous
May. 19, 2009

This is exactly my question. We are planing to sell and move out of state (NJ) to Virginia. Can someone answer the question?

25. RE: The New Jersey Exit Tax - NOT

Written by: Karl von Loewe
May. 19, 2009

Dear Anonymous,

As I have already written, if the gain on your home falls within IRS guidelines, you will in all likelihood not trigger NJ state withholding at the time of settlement (closing).  If, however, you have not lived in the property for at least two of the last five years or your gain is greater than $250,000 for an individual or $500,000 for a married couple, you be responsible for withholding by NJ. 

I am not an accountant nor an attorney, so for the best information, consult one or both.  You can also print out the NJ forms that I made available at my blog posting.

26. RE: The New Jersey Exit Tax - NOT

Written by: anthony appello
Jun. 21, 2009

Quyestion,

We did a short sale, made nothing, walked away with the shirts on our back, are we liable for the 2% exit tax?

27. RE: The New Jersey Exit Tax - NOT

Written by: Karl von Loewe
Jun. 22, 2009

Linked to my posting of April 14 of this year are the forms the State of New Jersey uses for calculating any "exit tax" on the sale of a home for an out-of-state (or soon to be out-of-state) seller.  The worksheet should make pretty clear that if your gain on the sale of your home does not trigger the Federal capital gain tax, then you should be safe from New Jersey. 

To be certain, though, it's best to contact your tax adviser.  I am neither an attorney nor an accountant.

Karl

28. RE: The New Jersey Exit Tax - NOT

Written by: Drew
Aug. 12, 2009

Hey Karl,

I've been in my NJ home for less than a year and currently have it listed on the market for sale.  I expect to gain way below $250K on the sale of my property.  I'm looking to purchase a home in PA.  Would I be responsible for paying the exit tax if I meet one of the IRS criteria or do I have to meet all?

29. RE: The New Jersey Exit Tax - NOT

Written by: Karl von Loewe
Aug. 17, 2009

Drew, I believe the time frame is crucial - a minimum of two years as your primary residence in order to meet IRS guidelines.  Having said that, I have heard that the IRS may consider extenuating circumstances, such as loss of employment,  job transfer, etc.  In such a case perhaps NJ may not be so hard-nosed. The best course of action for you at this point is to consult an accountant. 

30. RE: The New Jersey Exit Tax - NOT

Written by: nitin
Sep. 3, 2009

Dear Karl,

Thanks for informative blog.

It will be very useful if you can show two examples, one selling home and moving out of state and another selling but staying in NJ.

Pl. show Settlement list items with where Taxes and other charges will differ. Also pl. advise on what forms must be file for refund. -Nitin 

31. RE: The New Jersey Exit Tax - NOT

Written by: donna
Jan. 15, 2010

Am I getting this straight?  Homeowners pay this tax to cover any income taxes they owe before they move out os NJ and it is excrowed at the time of the sale.

Renters do not pay this exit tax?  What happens to the income taxes they owe or do they get of scott free and the home owner, once again in NJ gets the shaft?

32. RE: The New Jersey Exit Tax - NOT

Written by: Karl von Loewe
Jan. 15, 2010

Donna, the reason homeowners are liable for the withholding of some of their proceeds from the sale of their home is that in the past homeowners often had a capital gain on the sale, and the state of New Jersey wanted to make certain that the appropriate tax was escrowed, since they couldn't easily chase someone out of state for what was owed.  Renters have no potential for capital gain, so they get off "scott-free."

Karl

33. RE: The New Jersey Exit Tax - NOT

Written by: jayne
Jul. 31, 2010

thank you! That was very clear. Actually since we posted this we have refinanced this home in nj and are planning on hanging on a few more years.

If the tax laws do not change this information will be helpful when we do in fact sell.

 

jayne

34. RE: The New Jersey Exit Tax - NOT

Written by: gucci outlet
Dec. 27, 2010

We owned and still own a house in Vermont which we had hoped to sell in 07. We bought a house in NJ to be closer to family, hoping to sell the house in Vt by now. After two years in NJ we feel we can't afford to live here,

35. RE: The New Jersey Exit Tax - NOT

Written by: Theresa
Feb. 3, 2011

Here is the situation.... My husband and I sold our primary residence in May 2010 after 5 years. It was in NJ.  I continued to live in NJ until July 2010 but my husband moved to Alabama Dec. 2009 to start a new job. I had planned to continue living in NJ but eventually did move due to financial reasons.  My closing attorney noted that we were moving to another permanent residence in NJ at the closing of the sale. I did not have to pay an exit tax.  In addition, we lost $50K on the sale of our home.  

My question is... Is there a  time-frame for how long you must reside in NJ after the sale of your primary residence to avoid paying the exit tax? How will the fact that my husband moved to another state affect the exit tax issue, if any? 

Thanks for any advice....

36. RE: The New Jersey Exit Tax - NOT

Written by: Karl von Loewe
Feb. 3, 2011

Theresa, thanks for your question.  As far as I know, and you know I'm not an attorney, there should be no tax consequences beyond the normal 2010 NJ income tax should you move out of the state.  There does not seem to be any time limit on how long you have to stay in NJ after sale.  Moreover, since you lost money on the sale of your home, there was none to begin with.  Feel free to move on.

Karl

37. RE: The New Jersey Exit Tax - NOT

Written by: Theresa
Feb. 3, 2011

Thank you for your timely and helpful response! 

38. RE: The New Jersey Exit Tax - NOT

Written by: Dom
Aug. 4, 2011

This article is quite out dated now and there have been a lot of updates to the law...which no one can still figure out.  It now applies to both residents and non residents, but the wording says it applies to capital gains...what if you sell your home for a loss? 

39. RE: The New Jersey Exit Tax - NOT

Written by: Anonymous
Aug. 4, 2011

Dom, you raise an interesting point  The current administration in Trenton has made a host of changes to the tax structure in New Jersey.  However, one thing remains the same: if you might have tax liability to the state and you sell your home FOR A GAIN, they will attempt to capture/withhold proceeds.  If you sell it for a loss, you're probably home free.

Another recent issue has become the bulk sales tax, which was originally created to tax the inventory of a business sold to a new owner (this is an oversimplication, but that is its essence).  Paperwork was demanded of the simplest of residential transactions - gain or no gain - and in absence of such paperwork opened up buyers to signficant tax liabiity.  A recent bill has passed the Senate and the Assembly, and as far as I can determine is still sitting on the Governor's desk.

But here's my most important point: I am not an attorney.  I do not play one on TV.  The legal/tax advice you're seeking is best obtained from your tax advisor or attorney, not from me, but I thank you for your comments.

40. RE: The New Jersey Exit Tax - NOT

Written by: Karl von Loewe
Aug. 4, 2011

Oops!  My bad.  I am not anonymous.  I am Karl.

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New Jersey Real Estate

Hillsborough, New Jersey

Real estate market information and occasionally spirited opinions about residential real estate in Somerset, Hunterdon, Mercer and Middlesex Counties by a REALTOR® with over a quarter century of experience. COMMENTS ARE WELCOME. Please use the Add Comment link at the bottom of the posting.

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