16 Aug Mom died. Do we owe the exit tax on her beach home sale?

Q. Me and my siblings inherited my mom’s beach house in West Cape May. We sold the house for $475,000. We live in Maryland. My mom had the house for at least 30 years. She stayed there about six months out of the year and her residence was Maryland. Do we have to pay the exit tax in New Jersey?
— Beneficiary

A. We’re sorry to hear about your mom.

The term “exit tax” is deceiving.

It is not a separate tax, but a pre-payment for possible New Jersey taxes you will owe on the sale of your mom’s beach home, said Gail Rosen, a Martinsville-based certified public accountant.

“As nonresidents of New Jersey, you are required to pay this pre-paid exit tax, equal to the higher of 2% of the sales price of your home or 8.97% of the profit,” she said, noting that the amount will be withheld at the closing.

To calculate the true tax owed on the sale of the New Jersey beach house, take the sales price, and then subtract the cost basis of your mom’s beach house, Rosen said.

“Cost basis is equal to the value of the property on the date of your mom’s passing, or the alternative date of six months following her death, plus applicable costs incurred after her death allowed by the tax law,” she said. “A non-resident New Jersey tax return must be filed for 2022 to reconcile the pre-paid exit tax versus the actual taxes due per the calculation described above.”

You may have a portion of the withheld tax refunded, she said.

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This story was originally published on Aug. 16, 2022.

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