08 Jan I’m moving to Florida. Will I owe taxes?

Q. I am moving from New Jersey to Florida. I will sell the New Jersey house, which has been my primary residence for 32 years. I made far less than $500,000 in capital gains and I am married filing jointly. Even if I am moving to Florida, will I be subject to any capital gains taxes or exit tax?
— Out of here

A. We’re sorry to see you go.

There are two tax issues to address with your question: capital gains tax and the so-called “exit tax.”

Let’s start with the exit tax, which is not an additional tax, but a prepayment of the tax owed on the sale of real property by non-residents, said Ann Marie Perry, a certified public accountant with Peapack Private Wealth Management in Summit.

Because you are moving out of the Garden State, you would be subject to the exit tax/prepayment as a non-resident, she said.

For the exit tax — the tax prepayment — New Jersey requires a prepayment of 2% of sale price or 8.97% of net profit, whichever is higher, Perry said.

“Once you file your New Jersey tax return, you will get a credit for this amount that was prepaid,” she said. “If no taxes are due on the sale of your primary residence since your gain was under $500,000, this prepayment will be refunded or applied against other tax liability for that tax year.”

There are exemptions from the withholding can be claimed if you qualify for one of the Seller’s Assurances on Form GIT/REP-3, Perry said. There are 16 different “Seller’s Assurances” which include when the real property sold is used exclusively as a principal residence as defined in 26 US Code Section 121, or if the gain from the sale is not recognized for federal income tax purposes under 26 US Code Section 721, 1031 or 1033.

“The entire gain must be excluded from gross income,” Perry said. “NJ Form GIT/REP-3 – Seller’s Residency Certification/Exemption, must be filed to declare residency and claim the exemption from the withholding tax, if eligible.”

On the capital gains tax, the Internal Revenue Code (IRC) section 121 allows taxpayers filing a joint tax return to exclude up to $500,000 of capital gains on the sale of a principal residence, Perry said.

“Generally, you must use and own the property as your principal residence for at least two of the last five years before the sale,” she said. “For a joint tax return, to claim the full $500,000 exclusion limit, either spouse may meet the ownership test, but both must meet the use test unless a divorce or separation agreement grants only one spouse the use of the home.”

If filing separately, each spouse qualifies for a $250,000 capital gain exclusion, she said.

So you will not be subject to capital gains tax if your gain is under $500,000 and you meet the following tests:
· Ownership Test: Owned home for two or more years during the five-year period ending on sale date.
· Use Test: Lived in the home as your principal residence for two or more years during the five-year period.
· Additional Home Test: During the two-year period ending on sale date, you didn’t exclude a gain from sale of another home.

Perry recommends you speak to a tax professional about the specifics of your situation.

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This story was originally published in January 2024.

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