30 May My in-laws are leaving N.J. Will they owe the exit tax?

Q. My in-laws are permanently moving from New Jersey to Connecticut. Because of the $500,000 capital gains exclusion, they will owe no tax on the sale. Will they still owe 2 percent on the sales price as a tax estimate?
— Son-in-law

A. No, they won’t.

You’re referring to the so-called exit tax, which has been a source of confusion for many home sellers.

First, we should establish one key fact: The exit tax is not a tax imposed on residents of the state, but only on non-residents, said Cynthia Fusillo, a certified public accountant with Lassus Wherley, a subsidiary of Peapack-Gladstone Bank, in New Providence.

“The exit tax is not an additional tax, a special tax or even a new tax, but merely a prepayment of the tax owed on the sale of real property by non-residents,” Fusillo said. “In fact, it is an estimated tax payment and was enacted in order to prevent non-residents from evading tax on the sale of second homes or investment properties.”

Your in-laws, from what you’ve indicated, are residents of New Jersey up until the day they move out, Fusillo said, so they will not be subject to the 2 percent exit tax prepayment.

Additionally, they won’t have to make a regular estimated tax payment for their sale, she said, because there will not be any realized gain.

“Finally, I do want to point out that they will file their 2019 New Jersey tax return on a NJ-1040, not on a non-resident return,” she said. “The NJ-1040 has an area where taxpayers indicate their dates of residence in the state and report income accordingly.”

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This story was originally published on May 30, 2019.

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