Pennsylvania resident asks: Can I deduct the ‘exit tax’ on my tax return?

New Jersey's "exit tax" again raises questions.

We recently posted another column about New Jersey's supposed "exit tax."  But out of state sellers keep asking questions about the minimum 2% of the sales price that was withheld at the time of closing and sent to the New Jersey Division of Taxation.

At NJMoneyHelp.com, a Pennsylvania resident asks if the payment can be deducted on his Federal income tax return.  Here's the answer:

Q. We live in Pennsylvania and sold a townhouse in New Jersey. We were charged the exit tax. Can this tax be claimed on our federal income tax return? — Taxed enough

A. Let’s first clarify what the so-called exit tax means.
 It’s not a special tax levied on a person who sells property in New Jersey.
 Instead, it’s an estimated income tax withholding imposed by the New Jersey Division of Taxation on the closing of a nonresident taxpayer’s sale of a New Jersey residence, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.
 The amount withheld is the greater of 10.75% of the gain realized or 2% of the selling price.
 Even if the residence was sold at a loss, this withholding will apply, Becourtney said.
 Becourtney said you can include this state income tax as part of your state and local income and real estate tax deduction, commonly referred to as the SALT deduction.
 “However, the Tax Cuts and Jobs Act (TCJA) imposed a severe limit on the SALT deduction: $10,000 if your filing status is single, married joint, or head of household, $5,000 if it’s married separate,” Becourtney said. “If you had more than $10,000 of state income tax and real estate tax payments during the year, the `exit tax’ will produce no federal tax benefit because you will have already reached the maximum SALT deduction.”
 This situation is predicated on your itemizing your deductions, he said. With the $10,000 SALT deduction limit, far fewer taxpayers itemize their deductions and instead take the larger standard deduction.
 “The standard deduction for a joint filer for 2019 is $24,400, with an additional increment of $1,300 for a spouse who has attained age 65,” he said. “If both spouses have attained age 65, the standard deduction for 2019 is $27,000.”

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There you have it.  The answer - it depends!  But it is the correct answer.

As one of New Jersey's most experience title insurance agents, we get a lot of questions from buyers and sellers.  Have one for us?

Let us know!

We are the New Jersey title insurance agent that does it all for you. For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!

For your real estate purchase or mortgage refinance or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Land Services LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 973-227-0645

E-mail sflatow@vested.com

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