04 Apr I asked for an exit tax refund. What’s next?

Q. I’m in the process of requesting a tax refund for a vacation home I sold in 2023. I filed A-3128 with all the documentation but I have not received any notification from New Jersey if it was accepted or rejected. Do I need any certification/notification from the state before I submit my NJ-1040NR?
— Seller

A. Congrats on your home sale.

Looks like you’re asking about the so-called exit tax.

New Jersey enacted legislation to protect the state from a non-resident who sells real estate in New Jersey but then skips out by not paying the income taxes on the gain on the sale of the property, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

The state requires the home seller to make an estimated income tax payment at the time of the settlement — the so-called exit tax.

“The state requires the seller to pay at closing the larger of two numbers,” Kiely said. “The first is 2% of the gross sales price. The second number the is the gain on the sale times New Jersey’s highest tax rate which is 10.75%.”

Kiely said at closing, the seller of real estate in New Jersey must file form GIT/REP-3 State of New Jersey Seller’s Residency Certification/Exemption.

The form’s purpose is to demonstrate why the withholding rule does not apply, he said.

That’s where Form A-3128 comes into play. Form A-3128 is how you claim for a refund, he said.

“If you properly paid the withheld tax, but overpaid it based on the actual taxable gain on the property you sold, you should file NJ-1040NR,” he said. “This form is an income tax form for a non-resident. On it you would show the taxable gain on the property and the resulting tax. If you overpaid the tax, the State will send you a refund.”

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This story was originally published in April 2024.

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