In the case of selling a home in New Jersey or planning to move out, New Jersey Exit Tax implications must be considered in detail. The term sounds like a penalty amount for leaving the state. However, that’s not the case. In fact, this tax is a withholding requirement. The purpose of it is to complete New Jersey real estate tax and NJ capital gains tax necessities before leaving the state.
Why Does New Jersey Have an Exit Tax?
The NJ exit tax is not an additional tax. Instead, it is a method for the state to collect taxes owed at the time of sale. New Jersey would like to make sure that non-residents fulfill their taxation liabilities before they move away. Without such withholding, the state would have a harder time collecting taxes from former residents who no longer file New Jersey tax returns.
The withholding is required when selling a home in New Jersey and moving out of state. It applies to non-residents at the time of closing and is calculated in accordance with:
- 8.97% of the taxable gain from the sale, or
- 2% of the total sale price, whichever is higher.
This approach targets that New Jersey collects at least a portion of the capital gains tax owed, even if the seller does not remain in the state. In the case the amount withheld exceeds the actual tax liability, the seller can file a New Jersey Nonresident Income Tax Return to claim a refund.
Who Needs to Pay the NJ Exit Tax?
This tax applies only to non-residents selling property in New Jersey. Full-time New Jersey residents are exempt from this withholding. By proving the residency at the time of sale, individuals may not be subject to such taxation.
Final Thoughts
The New Jersey Exit Tax is a prepayment of potential tax obligations. It may seem like an extra burden. However, the purpose is not a penalty for moving out of state. If you are selling a home in New Jersey, tax professionals can present services in order to determine if there are qualifications for exemptions or a refund.