How to get an ‘exit tax’ refund

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Q. On the “exit tax,” I have questions for non-residents who sell property. Does New Jersey have a form that needs to be completed to get a refund, and is it filed before or after your 2 percent withholding is taken?
— Trying to understand

A. The so-called “exit tax” isn’t really a separate tax, but it’s an estimated tax that’s held aside at the time of a property sale to make sure the seller files a final New Jersey tax return. If the seller is leaving the state, New Jersey has concerns the seller may not file that final return and pay any taxes that are due.

So for a non-resident of New Jersey who sells real estate at a loss — meaning you’d be due a refund — there is certainly a method to claim a refund of the 2 percent tax withholding, said Timothy Torres, a senior tax accountant with Wilkin & Guttenplan in East Brunswick.

“The only form required in order to reflect the amount withheld at closing is the NJ 1040-NR tax return,” Torres said. “The time of the sale dictates when and for what tax year you will file this tax return.”

For illustrative purposes, Torres said, assume the real estate transaction closed on March 15, 2017. With that closing date, the transaction would be reported on the 2017 NJ 1040-NR and due April 16, 2018, excluding extensions.

“Assuming no other New Jersey-sourced income, the tax return would reflect zero taxable income with the 2 percent tax withholding listed as an estimated payment,” Torres said. “The estimated payment would not be offset by any income tax due to the loss, therefore, the entire amount would be refunded.”

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