New Jersey's so-called "exit tax."  How do I get a refund?

NJMoneyHelp.com weighs in with a good question regarding the #ExitTax.

Q. I will be 70 in a few months and I just relocated from New Jersey to Michigan four years ago. I recently sold 10 acres of raw, unimproved land in the Pinelands for $11,079. An “exit tax” in the amount of $220.84 was withheld. As a nonresident of New Jersey, I’m not sure what I need to do for my taxes.

— Former Jersey boy

A. We’re sorry to hear you left the state.

You would need to file a New Jersey non-resident return showing the gain — not the proceeds — as New Jersey sourced income, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

— Former Jersey boy

“The amount of New Jersey tax calculated on the gain would be compared to the amount of New Jersey income tax withheld, and a refund or additional amount would be due based on the difference between the two,” he said.

Hook said you would also report the gain on your Michigan tax return.

“You would be able to take a tax credit on your Michigan tax return for the amount of New Jersey tax liability to avoid being doubly taxed for state tax purposes,” he said, noting you would report the gain for federal purposes on Schedule D.

Email your questions to Ask@NJMoneyHelp.com.

This story was originally published on April 14, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.

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For your real estate purchase or mortgage refinance or

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If you read it on the Internet, it must be true. Well, not always

New Jersey's "exit tax;" who does it affect?

A recent consumer help column intended to answer a reader's question about the so-called "exit task," but missed the mark.

The question headline was:

I sold a vacation home. Do I owe the exit tax?

Q. I am a partner in an LLC that owned a vacation home for 15 years. The property was sold in 2020 and sale proceeds were split according to share ownership. I am now purchasing another property in the same New Jersey town. Will I still need to pay the exit tax?

The answer, with my corrections in [ ] was:

A. We’re going to assume you are a New Jersey resident for the answer to this question.

We get lots of questions about the “exit tax” when you sell a home and then move out of the state.

This “exit tax” is actually a withholding or estimated tax that is paid in advance if you are moving out of state. The cost is the greater of 8.97% of the profit on the sale of the home or 2% of the selling price, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

He said the state requires all real property owners to execute a special tax form that must be attached to all deeds upon sale of the property. Otherwise, or the deed would be rejected by the recording office, he said. [The most commonly used form is the GIT/REP-3]

Form GIT/REP3 – Seller’s Residency Certification/Exemption” is for New Jersey resident taxpayers [and non-residents claiming an exemption] and contains 14 [16] exemption choices, actually called “seller’s assurances,” that allow for any taxes on the gain to be paid when filing your NJ Resident NJ-1040 Gross Income Tax return, he said.

“Exemption No. 1 applies to New Jersey residents and states that all applicable taxes on the gain from the sale will be reported on a NJ Resident Gross Income Tax Return,” he said. “Exemptions No. 2 through No. 14 apply to non-residents [and residents claiming an exemption] and will not apply to you.”

Papetti said a New Jersey resident that sells real estate in the state, and then moves out of the state, is considered a non-resident on or after the day of transfer.

Part-year residents are considered non-residents.

The forms must be completed at the time of closing and given to the buyer/buyer’s attorney, he said. The buyer’s attorney must submit the original Seller’s Residency Certification/Exemption Form GIT/REP-3 or Non-Resident Form GIT/REP-1 to the county clerk at the time of recording the deed. Failure to do so will result in the deed not being recorded, he said.

“While some may feel the 2% minimum realty transfer tax is an exit tax, it applies to any non-New Jersey resident selling real property in New Jersey regardless of if they were a New Jersey resident prior to the sale,” Papetti said. “Assuming you are a New Jersey resident and will file a New Jersey resident tax return and qualify for Exemption No. 1, there will be no 2% ‘exit tax’ at the time of closing.”

Email your questions to Ask@NJMoneyHelp.com.

[In the question posed by the writer, it states the seller is an LLC.  No "exit tax" is collected because the withholding requirement only applies to individuals, estates, and trusts.  An LLC is not one of those and is entitled to claim an exemption by checking off box 5 on the GIT/REP-3.]

Here's a link to see the form and its instructions: 

https://www.state.nj.us/treasury/taxation/pdf/other_forms/tgi-ee/gitrep3.pdf

If you have any questions about what is written here, please contact me.

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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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.”

* * *
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

@vestedland

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Florida resident sells a home in New Jersey? What taxes will you pay?

Sold a home at a profit, what taxes will you pay?

Is it really New Jersey's "exit tax"?

Out of state residents who own real estate in New Jersey are often shocked to find that a minimum of two percent (2%) of the sales proceeds is collected at closing and sent to the State of New Jersey Treasury.  Some call this an "exit tax" when, in reality, it's nothing more than an estimated income tax payment.

This article from NJMoneyhelp.com discusses this payment:

Q. I have been a resident of Florida for the past 16 years and have just sold a two-family family house in New Jersey. Do I need to file anything other than an A3128 for a refund? We did make a substantial profit. What should I expect? — Seller

A. Congrats on your home sale.

It looks like you may need to pay taxes to New Jersey on your profit.

Unless the house was used solely as a personal residence and falls within the guidelines for the sale of a personal residence — which is unlikely given that you’ve lived in Florida for 16 years — you should expect a tax bill, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

You will have to file Form NJ-1040-NR as a non-resident, he said.

The profit will be calculated based on the difference between the selling price and the cost basis,” Karu said. “ If the property has been rented, there may be depreciation recapture as well.”

Upon the sale of a business, business interest, or real property in New Jersey, a non-New Jersey resident is subject to New Jersey gross income tax on the profit from that sale, he said.

“In order for the State of New Jersey to be sure that it gets paid, taxes are withheld at closing,” Karu said. “While people call it an ‘exit tax,’ the reality is that the payment is simply an estimate tax payment against the tax that gets calculated when the non-resident income tax return is filed.”

* * * *

So, there you have it, it's a tax but not an "exit tax."

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

@vestedland

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New Jersey Exit Tax is not really an exit tax. Think of it as a tax prepayment.

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!
The below topic is something we deal with every day.  If you are a homebuyer, trust us to get it right.

**  From the blog of Untracht Early LLC.  A New Jersey based CPA firm.**

The New Jersey "Exit Tax" is not really an exit tax.

If you’ve recently been talking about moving around a former New Jersey resident, it’s likely you’ve heard something about the “exit tax” you’ll be required to pay as you move out of the state. As your conversation continues, you’ll likely hear stories of the price residents have paid to move, and how this forced them to reconsider moving. But what is this cost, and what do these stories all mean?

In actuality, the New Jersey “Exit Tax”, as it’s referred to, has been likened more to urban legend than fact by CPAs. The law requires sellers of New Jersey homes to pay the state tax in advance of moving, of either 8.97% of the profit on the sale of their home or 2% of the total selling price – whichever is higher.

The objective of the pre-payment is that no New Jersey residents can move out of the state without first paying taxes on the income from the sale of their home. At the end of the day, the New Jersey “Exit Tax” is simply misunderstood as an additional or special tax, instead of the pre-payment of potential income tax due that it really is.

The resulting question for many New Jersey taxpayers is, what happens if they don’t incur a profit on the sale of their home? The good news is that homeowners that incur a loss on the sale of their residence, and those who also pre-paid the tax before leaving the state, will be refunded the pre-payment when filing their NJ State Income Taxes.

Here’s some other information that may be pertinent to taxpayers who are concerned by the New Jersey “Exit Tax” estimated payment:

• Homeowners may be exempt under Internal Revenue Code Section 121, which makes gains on the sale of a home exempt from capital gains if the homeowner has used the home as their primary residence for 24 of the last 60 months (for married couples filing jointly, only one spouse must meet this requirement)
  • The exemption for these gains is up to $250,000 for single homeowners, $500,000 for those homeowners who are married filing jointly
    • Taxpayers are automatically disqualified if the home was acquired through a like-kind exchange or if they’re subject to expatriate tax
    • Taxpayers may qualify for a partial exclusion of gain if the reason for the sale of the home was a change in workplace location, a health issue, or an unforeseeable event
• The pre-payment for the selling of the residence should be recorded on the GIT/REP form

As time goes on, tax professionals hope that the New Jersey “Exit Tax” misnomer goes the way of other urban legends and becomes a footnote in taxpayers’ memories.

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

1500 Allaire Avenue, Suite 101
Ocean, NJ 07712

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

E-mail sflatow@vested.com

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New Jersey's "exit tax" - It's not really a tax, after all, but you have to pay it

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.

This is a good article from AskNJMoneyHelp about the so-called "exit tax" which is really not a tax but a way for the state to be sure you file your tax return after you have sold your real property and moved out of state.

As a #titleinsurance agent handling hundreds of closings this year, the subject of when this payment must be made is encountered by us on an almost daily basis.

Here's the full article:

Q. We own a commercial/professional condo in New Jersey and reside in Maryland. Is the property subject to the exit tax since we don’t file there?— Unsure

A. Let’s get things straight about the exit tax, a term that’s often misunderstood.

It’s not necessarily a tax.

“It is a required estimated tax payment to make sure a nonresident seller files a New Jersey tax return,” said Chadderdon O’Brien, a certified financial planner with RegentAtlantic in Morristown. “It is required because New Jersey is concerned that the seller may not file a New Jersey tax return and pay taxes if they are a nonresident or current resident that is leaving the state.”

When you sell a property in New Jersey as a nonresident, you are required to file the NJ GIT/REP-1 form (gross income tax form), O’Brien said.

New Jersey requires you to withhold the amount of either 8.97 percent (New Jerseys highest tax bracket) of the profit or 2 percent of the total selling price, whichever is higher, he said.This withholding requirement is the so-called exit tax.

O’Brien offered a few hypothetical examples to show how it works.Say you continue to rent your condo and do not sell, then the exit tax is not relevant. You just need to continue filing a nonresident tax return for your rental activities in New Jersey.

Or say you sell your property and have a taxable gain. Then you are required to make an estimated tax payment of the higher of 8.97 percent of the profit (capital gain) or 2 percent of the selling price.

When you file your New Jersey tax return, the actual capital gain tax that you owe will be deducted from your estimated tax payment and the rest will be refunded to you.

If instead you sell the property at a loss, or if there is no capital gain, then you must still make an estimated tax payment of 2 percent of the sale amount. In this case, you do not actually owe any tax, so you will get the entire 2 percent withholding back when you file your New Jersey nonresident tax return.

“As I mentioned above, New Jersey requires these estimated tax payments because it forces the seller to file a New Jersey tax return for that year,” O’Brien said. “The good news is that this is not an extra tax – it’s just a way for New Jersey to make sure that you pay any capital gain taxes that you might owe.”

Your specific situation will dictate your required estimated tax payment and how much you receive back in the form of a tax refund. As always, there are exceptions and caveats to the exit tax, so be sure to consult with a tax professional with any questions about your specific situation.

Email your questions to Ask@NJMoneyHelp.com.

Or, you can ask us!

For your next title order 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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