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

@vestedland

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Financing a vacation home, banks will make it harder to get that mortgage

The NY Times reports on Financing a Vacation Home.  The quick conclusion -

Buying a vacation home these days requires plenty of cash on hand.

Mortgage down payment requirements are considerably stiffer than for primary residences, and lenders are scrutinizing income more closely, which can make financing especially difficult for the self-employed.

And we just don't mean looking at the amount of money you have.  There are many other factors to consider.  To find out what they are, read the full article.

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

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 AT vested.com

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Buying your vacation home blues

The New York Times states

IT might be easier if you just paid cash for that vacation house.

There is loan money available for second-home purchases, but expect bigger down payments, higher interest rates and other standards tighter than on a principal residence — and those standards are tight already. In addition, there are quirks specific to vacation markets.

Back in the day, “there was virtually no difference in underwriting for vacation homes versus owner-occupied homes,” said Guy Cecala, the publisher of Inside Mortgage Finance. “That’s something that’s changed dramatically. The days of being able to buy a vacation home with little or no money down are over.”

For instance, favorable interest rate loans from the FHA are not available. And you’ll need at least 20% down to meet Fannie Mae and Freddie Mac requirements.

“Thirty percent also seems to be the “comfort zone” this year for down payments in the Jersey Shore towns where Michael Loundy, a broker at Seaside Realty, works. “You can get 20 percent down,” he said, “but the buyer has to look very strong with income-debt ratios.””

Read the full article - Financing a Vacation Home.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Vested Title Inc.

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-808-6130 - Fax 201-656-4506

E-mail vti@vested.com - www.vested.com

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Selling a vacation home? Tax treatment of furniture can catch you.

Karin Price-Mueller, the BizBrain at the Star-Ledger, fields questions from readers on a variety of matters. Here's one regarding tax treatment of furniture when selling a furnished home. (The question is shown in full.)

Q. When selling a furnished vacation home, can I add to my original basis the replacement costs of the furniture and accessories that came with my condo and that I have replaced over the years, such as TVs, rugs, couches, chairs, drapes and air conditioners? The condo unit was originally purchased for $80,000 plus a $5,000 furniture package, and we sold it furnished for $250,000. While I rented it out at times, I didn’t depreciate it. It was primarily a vacation home.

— Bob

"A. Even though you bought the home furnished all those years ago, you can’t include the furniture as part of your cost basis."

Essentially, you can only add improvements to the cost basis of the home, not furniture.

"Some examples of capital improvements that would qualify as an increase in cost basis include the cost of putting an addition on the home, replacing the whole roof, installing central air-conditioning, paving the driveway or rewiring the home."

"Adding the furniture to the cost basis is only asking for trouble, said Douglas Duerr, a certified financial planner and certified public accountant with U.S. Financial Advisors in Montville. "

Read the full article Furniture sold with home does not count toward cost basis.

And, as always, we recommend you speak to your tax advisor when undertaking any major financial transaction.

For your next title order or
if you have questions about what you see here,
contact Stephen M. Flatow
Vested Title Inc.
648 Newark Avenue, P.O. Box 6453,
Jersey City, NJ 07306
Tel 201-656-9220 - Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

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