08 Nov How can I get a faster refund of the exit tax?

Q. My wife and I bought a condo in Jersey City in 2007. We moved from New Jersey in 2011 and don’t file in the state, but we maintained the property for rent. We are finally selling it. Is there a way to avoid the exit tax? The gains on the sale are modest at $29,000. The 2 percent charge is a little over $7,000 and obviously puts a dent in our profits.
— Seller

A. Congrats on the sale of the condo, but there’s no escaping the exit tax.

First, the exit tax isn’t really an extra tax. It’s just an estimated tax on the home sale, and the state does it this way to make sure the seller files a tax return in New Jersey for the year in which the property was sold.

You moved out of New Jersey in 2011. Because this condo has not been your home for at least eight years it can no longer be considered your principal residence, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

The rule is you must pay in the larger of 2 percent of the sales price, which you said was $7,000, or the highest tax rate, which is 10.75 percent times the gain on the house. For you this is $3,118, Kiely said.

When you file a New Jersey Non-Resident income tax return, your actual tax on the $29,000 gain will be $403. Assuming you make the required estimated tax payment of $7,000, you will be eligible for a $6,597 state tax refund, Kiely said.

“If you close the condo sale before Dec. 31 of this year, you can file a New Jersey tax return early in 2020 and get your refund quite fast,” he said. “If the condo doesn’t close this year, New Jersey gets to keep your refund until you file your 2020 return in 2021.”

Because this is an estimated income tax payment. the only way to get all or part of it back is to file an income tax return, Kiely said.

“You can’t file an income tax return before the year is over, so I hope you close this year,” he said.

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This story was originally published on Nov. 8, 2019.

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