The New Jersey Exit Tax is a real estate transfer fee imposed on sellers leaving the state. It applies to residential properties sold by individuals or businesses relocating out of New Jersey.
Here, you can learn more about the exit tax and how it may affect you.
Purpose
The primary purpose of the New Jersey Exit Tax is to ensure that the state collects any taxes owed by individuals or entities moving out of New Jersey. It aims to capture capital gains taxes that might otherwise go unpaid if the seller moves out of state before filing taxes.
Calculation
The Exit Tax is calculated based on the profit made from the property sale. It will be the greater of these two things:
- 8.97% of the profit from the home sale
- 2% of the selling price
However, there are exceptions, so working with a tax professional may be beneficial.
Exceptions
Some sellers may be exempt from paying the Exit Tax. Exemptions may apply to individuals selling the property they use as their primary residence. However, this is only the case if they meet certain criteria, such as residing in the property for at least two of the five years preceding the sale. Also, exemptions may apply to sellers not subject to federal capital gains tax, such as those selling properties at a loss.
Reporting and compliance
Sellers subject to the Exit Tax must complete and submit Form GIT/REP-3, also known as the Seller’s Residency Certification/Exemption. This form helps determine whether the seller is exempt from the tax or eligible for any deductions. Sellers must also ensure compliance with federal tax laws related to the sale of real estate.
New Jersey Exit Tax is important for individuals or businesses selling residential properties and relocating out of state. Understanding its purpose, calculation, exemptions and reporting requirements is necessary to remain compliant and avoid the possibility of penalties.