29 Oct How much in tax will I owe when I sell this home?

Q. I’ve owned a home in New Jersey for the past four years and plan to sell. It was my family’s primary residence for just shy of two years before becoming a rental. We want to let the home go and use the proceeds to put down on our current home during a refi. My question is what type of taxes am I looking at having to pay? I’ve heard of an “exit” tax in New Jersey and capital gains.
— Seller

A. Good on with your new plan to pay down your mortgage.

You’re correct that there will be tax to consider.

When the property is sold, you will be subject to income tax at two different rates, said said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

First, he said, any depreciation taken that reduced the taxable income is recaptured and taxed as ordinary income, but has a rate cap of 25%.

Second, he said, any profit on the sale will be taxed at long-term capital gains rate, which has a maximum rate of 20%.

“Unfortunately, had you lived in it for more than two years, you would have been eligible to exclude up to $250,000 per spouse of that gain,” Karu said.

As an aside, there is no such thing as an “exit” tax. The tax is an estimated tax that may be withheld at the time of the sale so New Jersey can make sure it gets what it is due to it rather than have a home’s seller leave the state without paying.

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This story was originally published in October 2024.

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