The ‘exit tax’ if you’re a renter

Ask NJMoneyHelp

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Q. What happens to the “exit tax” if you become a renter? If you live in New Jersey and sell your home, do you have to prove you’re staying in the state? What if you rent and then move six months later? And what’s the transfer fee?
— Not getting it

A. Let’s make sure you understand the so-called “exit tax” isn’t actually an extra tax levied if you plan to leave the state.

Instead, it’s really an estimated tax payment — the state’s strategy to make sure those who leave the state file their final non-resident tax return. You’ll want to file that last return to make sure you can get back the estimated taxes you pre-paid, assuming you’re due the money back.

Usually, when you sell your principal home, you already have another place lined up, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

That new address will be used on some of the closing documents.

Kiely said the seller of the property — you — must fill out a New Jersey form called “Sellers Residency Certification Exemption,” or a GIT/REP-3 form.

“Usually you check box No. 1. In box No. 1, you state that you are a resident taxpayer of the state of New Jersey, you will file a resident income tax return and will pay any tax on any gain or income from the disposition of the property,” Kiely said.

At the bottom of the form is the Seller’s Declaration which states, “…any false statement contained herein me be punished by fine, imprisonment, or both.” It further states, “I furthermore declare that I have examined this declaration and, to the best of my knowledge and belief, it is true, correct and complete.”

So if at the time you sign the GIT/REP-3 form you intended to remain in New Jersey, you are safe, Kiely said.

“Even if things subsequently change and you leave the state, you are still safe,” he said. “But, if you lie in order not to avoid paying the estimated tax payment you may find yourself in deep trouble.”

Regardless of what you signed at closing, if you owe a tax to the state from your house sale, you are still required to file either a resident or non-resident income tax return, Kiely said.

The transfer fee you mentioned is called the Realty Transfer Fee (RTF). It was started in 1968 to offset the costs of tracking real estate transactions.

Sellers pay the fee, which is based on the home’s price. You can see the fee schedule and learn more on the Division of Taxation’s website.

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