24 Jun We sold our home. Do we owe the exit tax?

Q. We sold our primary home for $432,000 that we bought in 1995 for $113,000 and we are moving out of state. We file taxes married filing jointly. Will we have to pay the exit tax or are we exempt?
— Sellers

A. Let’s start by explaining the so-called “exit tax.”

It’s not a penalty tax that’s assessed if you sell your home and leave New Jersey.

It’s actually a “withholding” or “estimated” tax that is paid in advance if you are moving out of state, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

Non-resident sellers calculate the estimated gross income tax payment on the sale or transfer of real property in New Jersey. The gain on the sale/transfer is multiplied by the highest rate of tax — right now at 10.75% — but the estimated tax payment shall not be less than 2% of sale price, he said.

“The State of New Jersey requires all real property owners who sell their New Jersey real estate to execute a special tax form that must be attached to all deeds upon sale of the property, or the deed would be rejected by the recording office,” Papetti said.

The form, NJ Form GIT/REP3 – Seller’s Residency Certification/Exemption, has 16 “Seller’s Assurances” that exempt sellers from the tax withholding requirement.

Seller’s Assurance No. 2 applies to real property that was used as a principal residence and qualifies under Section 121 of the Internal Revenue Code (IRC), which excludes up $500,000 of gain for married taxpayers or $250,000 for single taxpayers.

“Based on the facts you provided, assuming you qualify for Section 121 gain exclusion which requires that the residence that was sold was used as your primary residence for two out of the past five years, the $319,000 gain from the sale would qualify for Seller Assurance No. 2 and not be subject to any New Jersey tax withholding,” Papetti said.

Note that if a New Jersey resident moves out of the state, they are considered a non-resident on or after the day of transfer, he said. Part-year residents are considered non-residents.

“The forms must be completed at the time of closing and given to the buyer’s attorney who must submit the original Seller’s Residency Certification/Exemption Form GIT/REP-3 or Non-resident Form GIT/REP-1 to the county clerk at the time of recording the deed,” he said. “Failure to do so will result in the deed not being recorded.”

“While some may feel the 2% minimum realty transfer tax is an exit tax, it applies to any non-New Jersey resident selling real property in New Jersey regardless of if they were a New Jersey resident prior to the sale,” Papetti said.

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This story was originally published in June 2024.

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