18 Jan How will N.J. tax our home sales after we move to Florida?

Q. We own our primary residence in New Jersey and several investment properties also in the state. Next year we plan on selling our primary New Jersey residence, declaring our current Florida house as our primary residence and becoming homesteaded in Florida. Some time after we become Florida residents, we plan on selling one New Jersey investment property a year. Florida has no state tax but New Jersey does. What should we expect for taxes?
— Homeowner

A. Congrats on your big plans.

New Jersey treats sellers of New Jersey residences remaining in New Jersey differently than those moving out of state.

Given that you will be selling your primary residence and moving out of New Jersey, New Jersey will likely consider you nonresidents for purposes of withholding on any tax on the gain from the sale, said Michael Eagan, director of national tax for CohnReznick in Holmdel.

“Unlike for sellers that continue to maintain New Jersey residency and file New Jersey resident tax returns, for nonresidents, New Jersey requires withholding of a portion of the sales price as an advance payment of any New Jersey tax due with respect to the gain,” he said.

This is what many people call the exit tax.

Any excess amount withheld will be refundable when you file your part-year resident/part-year nonresident tax return in New Jersey for the year of sale, Eagan said.

“Note that federal and New Jersey law both exclude up to $500,000 of gain realized on the sale of a residence by a joint return filer — $250,000 for a single filer — provided the home was both owned and used by the taxpayers as their principal residence for at least two out of the preceding five years,” he said.

As your investment properties are also in New Jersey, any gains on those sales will also be subject to New Jersey tax, Eagan said. You may need to file tax forms in New Jersey as nonresidents (Form NJ-1040NR) in the years you sell New Jersey properties to report any gain related to those sales, he said.

“Your status as a nonresident also affects the withholding of New Jersey tax on the sale of New Jersey properties, as a portion of the sales price of each property will be withheld as an advance payment of New Jersey tax owed on any sale gain,” he said. “Any excess of the withheld amount over the tax ultimately owed is refundable.”

To learn more about how the state handles tax and fees on property sales, check out the state’s guide.

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This story was originally published on Jan. 18, 2023.

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