Home Selling in Mount Royal>Question Details

Chris, Home Seller in Mount Royal, NJ

Can someone explain to me the NJ exit tax?

Asked by Chris, Mount Royal, NJ Wed May 27, 2009

We sold our house in NJ to move to SC. We lived in our current house for 8 years but in NJ for most of our lives. Does everyone have to pay this tax and how much is it?

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It is not an exit tax as so much as an estimated income tax payment on the gain paid at time of closing, its a way of assuring taxes will be collected. The payment cannot be less than 2% of the consideration received – or gross proceeds from the sale. You should be exempt if the home was your primary residence under Section 121 of the IRS code.
Here is the info:

Section 121 of the Internal Revenue Code
121 Exclusion

Section 121 of the Internal Revenue Code, which is often referred to as the 121 exclusion, generally allows homeowners to sell real property held (owned) and used (lived in) as their primary residence and exclude from their taxable income up to $250,000 in capital gains per homeowner, and up to $500,000 in capital gains for a married couple filing a joint income tax return.

Primary Residence
The 121 exclusion can only be used in conjunction with real property that has been held and used as the homeowner’s primary residence. It does not apply to second homes, vacation homes, or property that has been held for rental, investment or use in a trade or business.

Qualifications

Homeowners are required to have (1) owned and (2) lived in the real property as their primary residence for at least a combined total of 24 months out of the last 60 months (two out of the last five years) in order to qualify for the 121 exclusion. The 24 months does not have to be consecutive. There are certain exceptions to the 24 month requirement when a change of employment, health, military service or other “unforeseen circumstances” have occurred.

You should speak to a tax professional as well.
0 votes Thank Flag Link Wed May 27, 2009
Hi Chris,
In simple trerms, no you are not paying a tax to leave NJ. NJ withholds money, similar to your state income tax withholding, if you move out of state. They are trying to make sure those moving out of state file their taxes on their NJ income at the end of the year. You will receive a refund if you don't own any additional tax. In short, no there is no "Exit" tax. DO NOT BELIEVE THOSE THAT SAY "YES" there is a tax, because that is not accurate, it is withholding only.
0 votes Thank Flag Link Sat May 15, 2010
Hi Chris,
NJ tax law requires the settlement company to collect 2% of the proceeds to submit to NJ as an estimated tax payment.
If you lived in that home for 8 years, no capital gain tax will be due. When you file your final NJ tax return, this payment will be refunded to you.
If you have any other tax questions, I can be reached at H&R Block 856-232-7878
0 votes Thank Flag Link Sat May 15, 2010
Hi Chris,

Not sure that I understand, exactly, your question. I'm confused by the statement "We lived in our current house for 8 years" I'm confused because you used the past tense "lived" but then say "current house". I'm not being difficult but it makes a difference. If you moved out of NJ and lived in SC for 8 years and are now selling a property in NJ as a non-resident seller, then YES, there is a 2% tax on the sale of the property - 2% of the price listed on the deed that you will pay directly to the state at closing. That is what has been labeled the exit tax - because if you are not moving to another residence within NJ at the time of deed transfer, they want that money up front, at closing because of course it will be more difficult to get it from you if you live out of state. This tax law was ammended and became effective in July of 2007.

If you sold your property while living in NJ, and are moving to another residence in NJ, then you'll just complete the Seller's Residency Certification/Exemption (form GIT/REP3) for NJ resident taxpayers at closing. It has 8 exemption options and you'll choose which apply. This would allow for any taxable gains to be paid later, when you file your NJ income taxes.

Here is a link to a thread on SNOPES that I think had the best answer to this question when posed there.

http://message.snopes.com/showthread.php?t=16010

I hope this information helps. I do live and work in Gloucester county so if you need any additional guidance or information please feel free to contact me. My information is listed below.

Kim

Kimberly Thomas, Broker-Associate
Realty Executives Brown & Pope
856-308-5989
http://www.KimThomasHomes.com
email: kim@kimcanhelp.com
0 votes Thank Flag Link Tue Jun 2, 2009
Did you live in the NJ house as your primary residence for 8 years prior to moving to SC? Did this move take place in 2009? Have you filed a NJ tax return as a part year resident?
I think what you are calling the NJ Exit tax is the estimated tax paid toward any 2009 tax liability. You may not owe any tax on your capital gain. ( gotta love sec.121)
You will reconcile your tax liability with NJ and apply for a refund at the end of tax year 2009.
Go see your people at H&R Block.
0 votes Thank Flag Link Wed May 27, 2009
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