NEW JERSEY EXIT TAX

When a home is sold in New Jersey, sellers have to make an estimated tax payment at the time of closing.

This estimated tax payment is actually the “exit tax” that so many New Jersey homeowners have questions about.

New Jersey imposes this tax to make sure homeowners pay what is owed on their final state tax return even if they no longer live in the state.

State rules say the estimated tax payment shall not be less than 2 percent of the consideration for the sale as stated in the deed.

To qualify, the home would have had to be your principal residence for 24 of the previous 60 months.

Effective Aug. 1, 2004, the state enacted P.L. 2004, Chapter 55, which requires nonresidents of New Jersey to pay an estimated tax on the income from the sale of New Jersey real property.

This estimated tax is an enforcement tool to enable the state to collect tax from nonresident sellers, and it’s collected when the deed is recorded, he said – MEANING AT CLOSING.

The state wants to make sure you don’t actually skip town without paying the tax.

In conjunction with the sale of your New Jersey property, you will need to complete Form GIT/Rep-1 (Nonresident Seller’s Tax Declaration) and it should be given to the buyer or buyer’s attorney.

Along with the form, you will need to include the applicable estimated tax payment. This would be equal to the greater of 8.97 percent of the gain on the sale of the property or 2 percent of the consideration received for the sale, Bloom said.

The estimated tax payment that you make at the time of the sale would be reported on your State of New Jersey Income Tax–Nonresident Return that you file for the year of sale. If the estimated tax payment exceeds your actual tax liability, you would receive a refund.

A New Jersey nonresident who sells a home in New Jersey which they previously lived in, and which still qualifies for the personal residence exclusion, would still be required to make this payment but may not have any taxable gain on the sale on their tax return due to the personal residence exclusion. After filing their New Jersey tax return, they may not have a taxable gain at all, thus resulting in no New Jersey exit tax AND IN FACT A REFUND OF THE TAX YOU WERE REQUIRED TO PAY AT CLOSING.

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