25 Jan How much tax will I owe N.J. when I sell my home?

Q. We are a senior couple with an adjusted gross income of under $100,000. We live in a low income unit that was purchased in 1992 for $55,000 and we can sell it for $132,000. We want to sell and move to Florida but are worried that the fees and taxes to New Jersey will take a lot of the profit we would be using for the Florida down payment. What should we expect?
— Planning

A. Congratulations on your exciting plans.

The tax rules for selling a home in New Jersey are the same for normal single family residences and low income housing units.

In addition to typical closing costs on the sale, as a seller you will have to pay a realty transfer fee, which is generally under 1% of the sale price. Seniors pay a lower rate, said Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield.

He said if you have lived in the home as your primary residence in two of the last five years, you get a large tax break.

“Single filers are exempt from federal capital gains taxes on the first $250,000 of gains and married couples filing jointly are exempt on the first $500,000 of gains,” he said. “This exemption is only allowable only once every two years, and as the seller you must not have sold another home and claimed the exemption within the last two years.”

Additionally, you can add any home improvements, renovations or additions you have done to the property to your cost basis, thus further reducing the taxes you’ll owe, he said.

DeFelice said under the current tax code, the remaining amount of gains will get taxed at 0%, 15% or 20% depending on your income and filing status.

“If you’ve lived in the home since 1992 you qualify for the exemption, and won’t owe any federal tax on the sale,” he said. “The state of New Jersey follows the federal home sale capital gain exclusion rules, so since you qualify, you won’t owe capital gains tax to New Jersey either.”

However, there are still cash flow considerations you need to be aware of.

When New Jersey residents sell their homes and prepare to move out of state, you must prepay a standard tax rate on the profit from the sale, he said. You need to pay this tax when you move, rather than at the time you would normally file your state income tax return, DeFelice said.

“Because of the timing of the state tax requirement, this policy has been thought of as being a New Jersey exit tax because it is paid upon `exiting’ the state,” he said. “However, it is really simply a prepayment of state taxes that you may owe, based on profit from the sale.”

New Jersey withholds either 8.97% of the profit or 2% of the selling price, whichever is higher, he said.

“This estimated tax is adjusted when the seller files a New Jersey tax return for the year of the sale,” he said. “The seller must pay this tax prior to leaving the state, even if there is no gain from the sale. But the state takes all that into account once the year-end income tax return is filed.”

DeFelice said although the prepayment obligation is an inconvenience for a seller moving out of New Jersey, the tax is refunded or reduced as appropriate at the time of filing.

So in your example, you would have to prepay $6,906.90, which is 8.97% of the gain on the sale ($132,000 minus $55,000 equals $77,000), which you would receive back as a refund when filing your taxes the year of the sale because you qualify for the capital gains tax exemption, he said.

Once you sell your home in New Jersey and are leaving the state, you are technically considered a non-resident. You can then file Form A-3128 to claim an early refund after closing, along with proof of overpayment, he said.

You should speak to a real estate attorney and an accountant who can go over the specifics of your deal and make sure you file all the correct forms.

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This story was originally published on Jan. 25, 2022 .

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.