14 May After divorce, we will owe ‘exit tax’ on home sale?

Q. My ex-wife and I divorced in December 2018. We are selling our primary New Jersey home of 25 years. We are splitting the proceeds there is no mortgage. If we both rent in New Jersey will we have to pay the 2 percent exit tax at closing?
— Seller

A. First, let’s be clear: The “exit tax” isn’t an extra tax. It’s a pre-payment of tax that may be due on the sale of your home.

If you’re staying in New Jersey, you won’t be exposed to the “exit tax,” said Alex Coriddi, a certified financial planner with RegentAtlantic in Morristown

“The New Jersey exit tax affects those who sell and move out of the state, making them pre-pay some New Jersey state taxes on the gain of their home before they move,” Coriddi said. “Resident sellers fill out a form called GIT/REP-3, which allows for a waiver of the estimated tax payment requirement.”

Coriddi said the law requires sellers of New Jersey homes to pay the state tax, in advance of moving, of either 8.97 percent of the profit on the sale of their home or 2 percent of the total selling price – whichever is higher.

The objective of the pre-payment is that no New Jersey resident can move out of the state without first paying taxes on the income from the sale of their home. At the end of the day, Coriddi said, the exit tax is simply misunderstood as an additional or special tax, instead of the pre-payment of potential income tax that really is due.

The resulting question for many New Jersey taxpayers is what happens if they don’t incur a profit on the sale of their home?

“The good news is that homeowners that incur a loss on the sale of their residence, and those who also pre-paid the tax before leaving the state will be refunded the pre-payment when filing their New Jersey state income taxes,” he said.

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This story was originally published May 14, 2019.

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