The So-Called New Jersey Exit Tax

The New Jersey Exit Tax is a minimum 2% estimated income tax on the sale of real property within the State by nonresidences of New Jersey paid at the time the property is sold.

The estimated income tax paid is credited to your actual income tax liability due at the time of filing your individual New Jersey Income tax return (NJ 1040). The New Jersey Exit Tax paid is a deposit toward the final income tax liability related to the sale transaction.

Nonresident individuals and nonresident estates or trusts are subject to New Jersey income tax on income received from all sources computed as if the taxpayer was a New Jersey resident, then prorated based on the ratio that the taxpayer’s New Jersey income bears to income from both inside and outside New Jersey. For purposes of determining taxable income during any period of nonresidence, gross income includes only New Jersey source income.

Sales of real property

Effective retroactive to August 1, 2004, nonresident individuals, estates, or trusts who sell or transfer certain real property located within New Jersey are required to pay estimated income tax. The tax is equal to the amount of the gain, if any, reportable for federal income tax purposes multiplied by the highest applicable gross income tax rate for the taxable year. The estimated tax payment cannot be less than 2% of the consideration for the sale or transfer stated in the deed affecting the conveyance.

A seller is considered a nonresident unless a new residence has been established in New Jersey.

Exemptions from the payment of estimated gross income tax on the transfer of real property are available if:

• The real property being sold or transferred is used exclusively as the principal residence of the seller or transferor;
• The seller or transferor is a mortgagor conveying the mortgaged property to a mortgagee in foreclosure or in a transfer in lieu of foreclosure with no additional consideration; or
• The seller, transferor, or transferee is an agency or authority of the federal or the state government, a federal mortgage corporation or association, or a private mortgage insurance company;
• The seller is not an individual, estate, or trust;
• The total consideration for the property is $1,000;
• The gain from the sale is not reportable for federal income tax purposes or is a   cemetery plot; or
• The transfer is made by an executor or administrator to effect the distribution of a   decedent’s estate.
• Sheriffs’ sales; and
• Bankruptcy trustees’ sales.

A refund may be claimed by the taxpayer if the estimated tax paid exceeds the taxpayer’s actual tax liability for the year. Interest does not accrue on the overpayment amount.

A nonresident seller’s estimated tax declaration and associated payment must be given to the buyer at the time of closing.

Please call our office at (732) 531-8000 for an appointment to discuss the 2015 tax planning strategies that may apply to you.