It is an estimated income tax payment on the gain paid at time of closing. Its a way of assuring taxes will be collected.
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 the closing table. It's also 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.
You will complete a Seller's Residency Certification/Exemption (form GIT/REP3) http://sellitfast123.com/wp-content/uploads/2011/12/gitrep3.pdf for NJ resident taxpayers at settlement. It has 8 exemption options and you'll choose which apply. Refunds will be given to you of that money when you file your return , that is if you qualify for a refund.
Section 121 of the Internal Revenue Code
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.
The 121 exclusion can only be used in conjunction with real property that has been held and used as the homeownerâ€™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
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 â€œunforeseen circumstancesâ€ have occurred.
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