03 Apr Is the “exit tax” due when home sells at a loss?

Q. If someone has to pay the exit tax, but if the home actually sells at a loss so you’ll get the money back, do you have to wait for the end of that tax year to file the nonresident tax return? Or can you file sooner?
— Selling

A. We know the term “exit tax” really gets people’s blood boiling.

The term sounds like a tax an individual must pay to in order to leave New Jersey for another state, but it’s not.

It’s actually a pre-payment of estimated taxes paid on or before the date of the closing to prevent non-residents of New Jersey from evading income tax attributable to the sale of their New Jersey home, said Jennifer Presti, an attorney with Mandelbaum Salsburg in Roseland.

It is not an additional tax.

“For tax purposes, non-residents of New Jersey are defined as individuals who do not reside in New Jersey as their permanent residence on or after the date of the real estate closing,” Presti said. “Persons who reside in New Jersey for only a portion of the year are also considered non-residents.”

She said the tax payment required is 2 percent percent of the selling price of the home or 8.97 percent of the net gain from the sale of the home, whichever is greater.

Now for the kind of case you’re asking about.

Even if the non-resident sellers of a New Jersey home recognize no gain from the sale, an amount equal to 2 percent of the sale price must still be paid on or before the date of the closing, Presti said.

“The seller can wait until the end of the tax year and file a New Jersey Non-Resident Gross Income Tax Return to obtain his or her refund of the tax paid,” she said. “However, the seller can immediately file a Claim for Refund of Estimated Gross Income Tax Payment (A-3128) form with the New Jersey Division of Taxation in order to expedite the payment of the refund.”

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This story was originally published on April 3, 2019.

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