23 Oct Will I have to pay the exit tax when I sell my home?

Q. If I sell my house this year and move out of state, I will be under the $250,000 profit for singles. By filing the GIT/REP3, do I still have to pay the 2% — not the 8.97% — on the profit at the time of closing? Since I am a resident of New Jersey for most of the year, I will be filing a New Jersey income tax return. And what is the reason for the “exit tax” anyway?
— Seller-to-be

A. Congratulations on your upcoming move.

Let’s unpack your question in a few parts.

The gain on the home’s sale is calculated as the net sales price less the adjusted cost basis, which is the original purchase price plus the cost of any capital improvements on the home, said Darren Zagarola, a certified financial planner and certified public accountant with EKS Associates in Princeton.

“If you have owned the home and used the home as your primary residence for at least two of the five years leading up to the date of sale, you are entitled to a capital gains tax exclusion on the first $250,000 of gains, or $500,000 for a married couple,” he said.

The capital gains tax rates depend on your taxable income and range from 15% to 20%, he said. Therefore, in your case, because the gain on the sale of your home is less than the exclusion amount, there will be no taxable capital gain, Zagarola said.

The New Jersey exit tax is not really a tax. It is a prepayment of the estimated tax you may owe on the sale of the property, he said.

“It is New Jersey’s way to make sure you pay your taxes before you leave the state,” Zagarola said. “The tax is 8.97% of the gain on the sale of the residence or 2% of the sales price, whichever is greater.”

When you file your tax return before April 15, the amount of the estimated tax — the exit tax — as taxes paid and is used to calculate whether you owe more tax or receive a tax refund, he said.

At the date of sale, the attorney for the buyer will file a GIT/REP form with the state, and the amount of the estimated tax is held in escrow by the attorney handling the sale until the tax return is filed, Zagarola said.

“If you have properly paid your income tax, you will receive the New Jersey exit tax in your refund,” he said. “You are exempt from the exit tax if you move within the state.”

So in short, yes, you have to pay the exit tax even if you do not have a capital gain on your home, Zagarola said.

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This story was originally published in October 2024.

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