Exiting New Jersey

Asked by Biscman, Tinton Falls, NJ Tue Jan 1, 2008

Is there any truth to a story I was told at a party. If someone owns a home in NJ over $500k and they go to sell it and they plan on moving out of state due to the crazy cost of living in NJ, there some type of "Exit" tax.?? Is that true? If so what %. How does the govt. assess this "tax"? Why isn't it a law that realtors tell people who move into NJ that if they plan on moving out of state at retirement this tax kicks in??

Tell me the person who told me this had too much to drink please!!!

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Deborah Madey, Agent, Brick, NJ
Tue Jan 1, 2008
Hi Jim,

There isn't an "exit tax"; but the prepayment of estimated taxes due is only required on exiting residents. It therefore earned the nickname, exit tax. Whether you leave or not does not determine if a tax is due. It can impact when and how it is paid.

The following are state taxes in NJ that are assessed upon sale and transfer of title. There are exceptions and exemptions.

Realty Transfer Fees apply to all sellers. This has nothing to do with leaving the state. Many states have a similar tax by similar or other names. This is paid by the seller.. The tax is determined on a scale, using a formula. (Estimate about $5700 on a $650,000 sale. Lower if the seller is aged 62+.)

A Luxury Tax (AKA - mansion tax) is assessed on buyer for all properties at or over 1M. It is 1% and paid by the buyer at closing. There are times when buyers make an offer on a property and ask the seller to pay this tax on their behalf.

The "Exit Tax" is not a special or additional tax. At closing, for exiting NJ state residents, an estimate is made for the amount, if any, of income tax that might be owed based upon the sale and transfer of the title for that property. This would include, but not be limited to capital gains. If there is an estimated tax due, a declaration and payment must be made at closing. Residents are allowed to file exemption paperwork. This isn't an "extra tax", it is NJ's way of assuring taxes due will be collected, since any collection activity outside the state would be more difficult.

I am not a tax planner or advisor. Consult a tax advisor for advice for your specific situation and whether or not a prepayment of estimated gross income taxes might be required.

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Claudia Marq…, Agent, Clinton, NJ
Sat May 9, 2009
The "Exit Tax" is not a special or additional tax. NJ Law requires that non-resident individuals who sell or transfer real property located in New Jersey make a NJ Gross Income Tax estimated tax payment on the gain as a condition of the recording of the deed.

Many New Jersey residents selling their homes and moving permanently out of state were utilizing the GIT/REP3 (Resident) form, based on the assumption they would be filing New Jersey income taxes for that tax year and would pay the taxes (if any) on the sale of the property at that time. As of July 2007, they can no longer do so. The state Division of Taxation has "amended" their position that, in order to utilize the Resident form, the seller MUST be moving to a New Jersey address as of the date of deed transfer, or they must use the Non-Resident (GIT/REP1) form, thereby requiring them to pay the minimum 2% of the deed consideration directly to the state.

The tax payment is determined by multiplying the gain on the sale by the top NJ tax rate of 8.97%. The payment cannot be less than 2% of the "consideration" received - or gross proceeds from the sale.

A resident taxpayer who will file a NJ-1040 for the year is exempt from making the estimated tax payment.

This is not an "exit tax", but an estimated tax payment. The purpose is to make sure that the non-resident individual files a Form NR-1040 to report the sale and pay tax on the gain. Because the required estimated Tax payment is made at the highest tax rate, the individual should receive and be entitled to a refund on the NJ-1040.
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William, Home Seller, 18951
Tue Jan 1, 2008
In PA the transfer tax is 2% - usually the buyer pays 1% and the seller pays 1%...

From the calculator below, looks like in NJ the transfer tax is somewhere around a half a percent ... so, it's not too bad by comparison... But - I'm not sure I understand what the Gross Income Tax is...
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Marc Paolella, Agent, Succasunna, NJ
Tue Jan 1, 2008
It's not an exit tax. It does not matter whether you leave or not. It's simply a realty transfer tax. It's quite common in many states. The formula is located here:


And here is a calculator to determine how much it will cost in New Jersey:


Hope this helps and Happy New Year!
Web Reference:  http://www.marcpaolella.com
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