NJ Exit Tax Explained
If you're selling your New Jersey home and moving out of state, you've probably heard about the "NJ exit tax." It sounds intimidating, but it's not actually a tax on leaving. Here's what it really is and how to handle it.
What Is the NJ Exit Tax?
The "NJ exit tax" is not actually a tax. It's a withholding requirement on the sale of a New Jersey home when the seller is moving out of state. New Jersey requires the title company or attorney handling your closing to withhold a portion of your proceeds and send it to the state if you are not a New Jersey resident (or if you won't be buying a new home in New Jersey).
It's a Withholding, Not an Additional Tax
The state withholds funds from your sale proceeds to ensure that any capital gains tax you owe is paid. If you owe less than the amount withheld, you get the difference back when you file your NJ tax return.
How Much Is Withheld?
The withholding is generally calculated based on the gain on the sale. The rate depends on whether you meet certain exemptions. Standard withholding is the lesser of 8.97% of the gain or the tax due.
When Are You Exempt?
You may be exempt from the withholding requirement if any of these apply:
Primary Residence Exclusion
If you are selling your primary residence and your gain is less than $250,000 (single) or $500,000 (married filing jointly), you may qualify for the federal exclusion and the NJ withholding exemption.
Seller Is Still a NJ Resident
If you are selling your NJ home but remaining a resident of New Jersey, the withholding does not apply to you.
Purchasing a New NJ Home
If you are using the proceeds to buy another home in New Jersey, you may be exempt from the withholding.
No Gain on the Sale
If your home sells for less than what you paid (no capital gain), there is nothing to withhold.
How to Handle the NJ Exit Tax Properly
1. Work With a Knowledgeable Agent
Sorelle regularly helps relocating sellers navigate the NJ exit tax process. She can connect you with a real estate attorney who specializes in out-of-state sales.
2. File the Right Forms
To claim an exemption, you or your attorney will file Form GIT/REP with the New Jersey Division of Taxation before closing. This form certifies your residency status and eligibility for exemption.
3. Talk to a Tax Professional
Every situation is different. Sorelle can refer you to tax professionals who understand NJ real estate transactions and can give you personalized guidance based on your specific financial situation.
4. Plan Your Closing Timeline
If the withholding applies, make sure you factor it into your financial planning. Any excess withheld will be refunded when you file your NJ tax return, but it may take several months.
Getting ready to leave NJ? Let's talk about your home sale.
Sorelle can walk you through the NJ exit tax process and connect you with the right professionals. You don't have to figure this out alone.