19 Jan Can I consider the “exit tax” a loss?

Q. In June 2016 I sold my home in New Jersey while residing in Delaware. The home was purchased in 2004 and we moved in 2007. The “exit tax” withheld $10,000. Can this be reclaimed when I fill my taxes? Can I file this as a “loss?”
— Assistance needed

A. The “exit tax” isn’t a penalty tax, and having to pay won’t necessarily mean a loss.

When you sold your New Jersey home you had to make an estimated tax payment at closing. That’s the so-called “exit tax.” New Jersey imposes this tax to make sure you’ll pay your final Jersey tax return even if you’re not living in the state.

The estimated tax due is equal to the gain reportable for federal income tax purposes, if any, multiplied by the highest New Jersey tax rate for that year, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

State rules say the estimated tax payment shall not be less than 2 percent of the consideration for the sale as stated in the deed.

“So if you, a non-resident of New Jersey, sells the property for a loss, you must still make an estimated tax payment of 2 percent of the sale amount,” Kiely said. “In your situation, you paid $10,000 at closing.”

That means you sold the house for at least $500,000 ($10,000 ÷ 2% = $500,000).

The sale of the house is not entitled to the home sale exclusion, which gives singles an exclusion of up to $250,000, or $500,000 for those married filing jointly, in profits on the sale of your principal residence, Kiely said.

To qualify, the home would have had to be your principal residence for 24 of the previous 60 months. Since you moved over nine years ago, you are ineligible for this exclusion, Kiely said.

So this year, in 2017, you must file a New Jersey Non-Resident income tax return for 2016, Kiely said.

“This return would list the particulars of the sale of your house,” he said.

Those particulars would be the date it was purchased, the cost basis (original cost plus cost of improvements), the date sold and net proceeds, which is the sales price minus sales commission and other items.

The calculations would result in a gain or a loss.

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This post was first published in January 2017.