20 Oct We’re selling our home. What will we owe in taxes?
Q. Can you help me determine tax liability on the sale of our home? My husband and I have owned the home for 25 years and we are doing a cash sale to a contractor. We paid $112,000 and we have $74,000 and $10,000 loans on the house. We are selling it for $175,000. We are seniors and will rent in the future. What is our federal and state tax liability and what happens with the exit tax?
A. Good news.
Based on the information you provided it does not appear that you will have to pay any tax on the sale of your home.
Subtracting from the selling price what you paid for the house ($175,000 – $112,000) equals a $63,000 gain, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.
You can also subtract from the gain any expenses you incurred to sell the house such as a sales commission, plus you can subtract the cost of any improvements you made to the home while you lived there, Hook said.
“But even if you had no selling expenses and did not make any improvements to the home, the gain of $63,000 will not be taxable for federal or New Jersey income tax purposes,” Hook said. “That is because married taxpayers can reduce their gain by up to $500,000 for the sale of their primary residence as long as they have lived in the home for 24 months out of the past 60 months — which you have. So no tax.”
As far as the exit tax goes, that would not come into play here.
Hook said the exit tax is a mandatory withholding requirement for sellers of property who are not New Jersey residents at the time of the sale of the property.
“The withholding of the tax forces a non-resident taxpayer to file a New Jersey tax return and either pay the tax owed on a sale or request a refund for any amount of withholding that exceeds the tax calculated,” Hook said. “Basically the state wants to discourage people from leaving New Jersey without paying their share of any income tax.”
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This story was originally published Oct. 20, 2020.
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