What the “exit tax” really means for a home sale in New Jersey

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Q: I’ve heard New Jersey charges an “exit tax” when you sell your home. I’m getting ready to downsize, and I need every penny I can get from my house. What is this tax and can I avoid it somehow?

A: New Jersey’s “exit tax” is something of a misnomer, and it certainly causes a lot of confusion among home sellers in the state.

It’s really an estimated tax, not a special or additional tax.

“New Jersey law requires that non-resident individuals who sell or transfer real property located in New Jersey make a NJ Gross Income Tax estimated tax payment on the gain as a condition of the recording of the deed,” said Laura Mattia, a certified financial planner with Baron Financial Group in Fair Lawn.

The real idea behind the tax is so New Jersey won’t lose out on money in case a home seller gets rid of a property and skips out of the state without filing a final state tax return, and paying any owed taxes.

Mattia said the tax generally applies to the sale of investment properties or second homes owned by non-residents.

If you’re a resident of the state or you are selling your primary home, you are exempt from the tax, Mattia said.

“You are able to file at closing a ‘Seller’s residency certification/exemption,’ which will allow you to avoid the tax,” she said.

But if you don’t qualify for any of the exemptions,  the minimum “exit tax” is 2 percent of the sale price, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Berkeley Heights.

“However, if you are  subject to the exit tax you can to claim the exit tax withheld on your New Jersey tax return and could possibly receive a refund, depending on your overall New Jersey tax liability situation,” Maye said.

When you sell a home in New Jersey, there are two other taxes you need to know about: the “realty transfer tax” and the “mansion tax.”

“The realty transfer tax is based on the home’s selling price,” Maye said.“For example a home that sold for $750,000 would pay roughly $6,775 during the home closing process.”

Maye said this tax was established in 1968 to offset the cost tracking real estate transactions, and payment of this fee is required before the deed can be recorded.

Then there’s the mansion tax, which is calculated for home sales that exceed $1 million of 1 percent of the sales price.

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This story was first posted in November 2014.
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