12 Apr Getting an “exit tax” refund

Q. If I sold a vacation home in New Jersey and I had no other New Jersey Income — I am a Pennsylvania resident — do I have to file a full non-resident New Jersey return or can I claim a refund on the Exit Tax using Form A-3128? In other words, do I have to file both a non-resident return and the Form A-3128?
— Confused

A. Great question.

You mentioned the Exit Tax, which isn’t really a tax but a strategy the state of New Jersey uses to make sure non-residents file returns in the state.

When you closed on the sale of the vacation home, you had to make an estimated tax payment, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

“The estimated tax due is equal to the gain reportable for federal income tax purposes, if any, multiplied by the highest New Jersey tax rate for that year,” Kiely said. “The estimated tax payment shall not be less than 2 percent of the consideration for the sale as stated in the deed.”

So if you, a non-resident of New Jersey, sells the property for a loss, you must still make an estimated tax payment of 2 percent of the sale amount, he said.

For 2017, you’d need to file a New Jersey Non-resident income tax return. This return would list the particulars of the sale of your vacation house, including the date purchased, your cost basis (the original cost plus cost of improvements), the date sold and the net proceeds (sales price less sales commissions, etc.).

These calculations would result in a gain or a loss.

“If you have a gain you, would calculate the tax on the gain,” Kiely said. “This tax would be less than your estimated tax payment, which was based on New Jersey’s highest tax rate.”

Kiely said the actual tax would be based on New Jersey’s graduated tax tables. Accordingly, you would be due a refund. If you had a loss, your refund would be 100 percent of your estimated tax payment, he said.

You asked if you could use form A-3128 to immediately claim a refund of your estimated tax payment. Kiely said this form is used to claim a refund.

You can use this form if you erroneously paid estimated tax and qualify for one of the exemptions listed on the GIT/REP-3 Form, or if you overpaid estimated tax based on the calculated gain on sale of property

Kiely said Form GIT/REP-3 form is titled “Sellers Residency Certification/Exemption.”

“You are not a resident taxpayer and the property was a vacation home not your principal residence, so Form GIT/REP-3 form does not apply to you. You are seeking a refund of an estimated tax payment,” he said.

If you had no gain on the sale of your vacation home and you made the minimum 2 percent of sales price estimated tax payment, your estimated tax payment was not calculated based on the gain, but rather based on the 2 percent minimum payment, Kiely said.

“The only way to get that back is to file a New Jersey Non-resident return next year,” he said.

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This post was first published in April 2016.