How to avoid the “exit tax”

Ask NJMoneyHelp

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Q. I’ve lived in my house for 40 years. My husband passed away three years ago, and my house is for sale. If I sell my house for $270,000 then decide I want to move out of state. Do I pay the 2 percent exit tax? If so, how is it calculated? What is the amount?
— Leaving soon

A. Ah yes, the dreaded “exit tax.”

It seems New Jersey taxes you like crazy when you’re here, and that the state wants one last bite before you leave.

That’s not entirely accurate.

The state wants to make sure that out-of-state home sellers pay what’s owed, and that they don’t skip out on paying taxes to the state if they move, relocate and never come back after the sale.

Every home seller has to pay income taxes on any gain from the sale of a home, whether you’re a resident, a non-resident or someone planning to leave the state.

To make sure it receives its payments, New Jersey enacted the “exit tax” to require sellers to make an estimated tax payment on the gain.

Here’s how it works.

If you are not a New Jersey resident when you sell your house, the State will have you pay an “exit tax” equal to 2 percent of the sales price, said Gail Rossen, a Martinsville-based certified public accountant.

But there’s a good possibility you will get the money back because of the exclusions on capital gains for home sales.

Rosen said it’s important thing to file your New Jersey non-resident or part-time tax return for 2015.

“Since you lived in this house as your principal residence for two of the last five years, then there is a $250,000 exclusion of any gain on the sale of this home,” Rosen said. “Since you do not owe this tax, you will entitled to a tax refund when you file your 2015 tax return.”

Rosen said some of her clients in similar situations have received a tax notice from New Jersey asking them to verify the tax was paid.

“This notice is easily answered by attaching a copy of your HUD statement to the tax notice showing the tax paid,” Rosen said.

Good luck with your home sale!

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NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.