24 Jun I moved to Florida. How much will I owe on my N.J. home sale?

Q. I’ve owned a home in New Jersey for the past 30 years. In 2018, I purchased a condo in Florida and transferred my residency to Florida since I am there over six months a year. I no longer file a state tax return in New Jersey. I am thinking of selling the New Jersey property, for which I paid $435,000 but it is now worth $735,000. I probably have $100,000 in improvements to the property. Can you give me an idea on the taxes or exit taxes I would owe upon the sale?
— Seller

A. Good luck with this potential home sale.

As you know, prices have skyrocketed, but higher mortgage rates will have a negative impact on buyers.

But you’re the seller, not the buyer.

If you sell a residence that you lived in as your principal residence for 24 out of the previous 60 months, you can exclude from taxation $250,000 if you’re single or $500,000 if you are married filing jointly, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

It seems from what you said that you have a $200,000 potential gain on your New Jersey residence.

“You changed your residency from New Jersey to Florida in 2018. That’s between 48 and 54 months ago, depending what part of the year you changed your residency,” Kiely said. “So you can’t meet the 24 months test. The gain will be taxable.”

Given that you’re not a New Jersey resident and you are selling a New Jersey home, the buyer’s attorney is going to withhold a New Jersey estimated income tax payment — what’s commonly called the exit tax — at closing.

The rule is you must pay in the larger of 2% of the gross sales price which is $14,700 ($735,000 X 2%) or the gain times New Jersey’s highest tax rate, which is 10.75%, Kiely said. For you, the $200,000 gain times 10.75% is $21,500.

So $21,500 will be withheld at closing.

“You will then have to file a New Jersey Non-Resident Income Tax return to report the sale,” Kiely said. “When you file the New Jersey tax return, you will show an actual income tax of $10,992 if you are single and $8,856 if you are married. The state will send you the appropriate tax refund.”

Also note that you can reduce your taxable gain further because of real estate commissions and legal fees incurred from the sale, so make sure you include that all in your calculations.

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This story was originally published on June 24, 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.