03 Apr We’re selling a co-op. Will we owe the exit tax?

Q. We are non-New Jersey residents who have owned a co-op in New Jersey since 2002 that we will be selling in the near future. Our daughter has been living there without paying rent. It was not a business property. Will we be exempt from paying the New Jersey exit tax? Perhaps because the co-op is actually owned by a corporation and we simply bought shares when we bought the property, there’s no deed and we haven’t lived in New Jersey for 30 years.
— Seller

A. Good luck on the sale.

But it doesn’t sound like you’ll be exempt from the so-called exit tax, which is really an estimated tax payment based on the gain on the sale.

You have correctly noted that as a co-op apartment owner, you own shares in a cooperative housing corporation, said Neil Becourtney, a certified public accountant and tax director with Smolin, Lupin & Co. in Red Bank.

For all tax purposes, owning those shares is treated the same as owning a condominium or a house such as deducting mortgage interest, he said. The fact that you have not lived in New Jersey for more than 30 years and that there is no deed on the apartment is not relevant, he said.

The so called “exit tax” is somewhat misleading.

“It reflects a requirement for New Jersey tax to be paid at the closing at a rate of 10.75% on the calculated gain but not less than 2% of the gross selling price when a nonresident sells a residence that does not qualify for exclusion from tax as a principal residence — $250,000 single, $500,000 joint — where the residence was owned and used as such for at least two of the preceding five years,” he said. “If you live in a state that imposes a personal income tax you will be able to claim a resident credit for the New Jersey nonresident tax you incur.”

Given that you purchased the co-op in 2002, be sure to include in your calculation of the cost any capital improvements you made over the 21 years of ownership, Becourtney said.

“In most instances the tax payment at closing exceeds the actual nonresident tax liability, however, you will not receive a refund of any overpaid tax until filing a New Jersey nonresident income tax return the following year,” he said.

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This story was originally published on April 3, 2023.

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