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.

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!http://

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

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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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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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