What taxes and fees are owed on this home sale?

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Q. My husband and I have been non-residents of New Jersey for five years but have retained our home. If we were to sell our home and purchase another home in New Jersey as non-residents, would we still be responsible for the same taxes and fees?
— Sellers

A. There are a couple of issues at play here.

First, as a non-resident, you clearly have a principal residence somewhere outside of New Jersey.

Therefore, the sale of your property in New Jersey will be fully taxable if you realize a gain and you will not be able to use the exclusion of gain provision normally afforded to principal residence sales, said Cynthia Fusillo, a certified public accountant with Lassus Wherley, a subsidiary of Peapack-Gladstone Bank, in New Providence.

That’s Section 121 of the Internal Revenue Code.

Further, as a non-resident, Fusillo said, New Jersey will require a prepayment of tax at closing, also known as the exit tax.

“The amount you pay up front will be the greater of 8.97 percent of your profit or 2 percent of the gross sales price, with 8.97 percent being the top individual rate in the state,” she said. “Once you actually file your tax return reporting gain on the sale, you will apply the prepaid exit tax as you would any other prepayments and withholding.”

Fusillo said the tax is simply a mechanism for New Jersey to be sure that you do file a tax return.

“The exit tax is not an additional tax – it is merely a prepayment of a possible tax liability and it applies only to non-residents,” she said.

You also mentioned selling your current New Jersey property and purchasing another. Whether or not you purchase another home will have no bearing on the tax you pay on the sale, she said.

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This story was originally published on Sept. 16, 2019.

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