New Jersey Exit Tax – Video #385
Here are the key takeaways:
– The New Jersey exit tax is not actually a tax for many people, but rather an estimated tax payment
– It was introduced in 2004 by Governor Jim McGreevey to prevent people from avoiding capital gains taxes when selling property and leaving the state
– The amount withheld is the higher of 8.97% of the capital gain or 2% of the total sales price
– The withheld amount goes into escrow and can be refunded the following year if there is no capital gain to report
– Exemptions exist for primary residences: single filers can exempt up to $250,000 in gains, while married couples filing jointly can exempt up to $500,000
– The purpose of the exit tax is to ensure that both New Jersey residents and out-of-state property owners pay their capital gains taxes when selling property in New Jersey
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New Jersey Exit Tax – Transcript
Going to talk about the New Jersey exit tax. Stick around for this one.
Welcome to the Mullooly Asset Show. I’m Tom Mullooly, and today we want to talk about the New Jersey exit tax.
We are asked this question a lot. It’s been around for twenty years I think it’s very misunderstood…what this New Jersey exit tax is.
It’s not actually a tax at all – for a lot of people.
But this was first proposed by Governor Jim McGreevey. Do you remember him? So what happens is if people sell their home and they move out of state …what was happening prior to 2004, is people were just skipping out on paying the capital gains.
New Jersey finally realized “hey you know people are selling their primary residence they’re buying… they are taking all of the money. They’re buying a place in Florida. They have no way to pay the taxes back in New Jersey.” And for that matter, they’re gone.
So it’s very hard for them – It was very hard for them to collect.
You also had…folks that owned property…in the state of New Jersey that weren’t residents of New Jersey They were “out of staters” that owned property, sold it, never paid the tax. So twenty years ago the state of New Jersey instituted the New Jersey exit tax.
Now what is this?
The NJ exit tax if you wanna call it that, is…uh the higher…of…eight point nine seven percent…of the profit of the capital gain that you have on the property So almost nine percent…of the capital gain. Or …two percent of the total sales price – whichever number is higher.
Now, this is where the story kinda goes off the rails. That amount is withheld at closing. But the money goes into escrow.
It’s technically an estimated tax payment. You’re not paying the tax.
Well you’re prepaying the tax.
You’re making an estimated payment.
The following year when you go to file your return, if you don’t have a capital gain, all of that money for the NJ Exit Tax, gets refunded back to you.
Now there are some exemptions and you do need to know this. If the home that you sold in New Jersey was your primary residence in two of the last five years, if it was your primary home, If you’re a single filer, single tax filer you can exempt…up to two hundred and fifty thousand dollars in gains.
If you’re married filing jointly, you can exclude…up to five hundred thousand dollars in gains And if that were the case and you didn’t have a capital gain to report, all of that money that you paid in the New Jersey exit tax would be refunded to you next year when you go to file.
So it’s not a NJ exit tax that you’re paying, it’s an estimated tax payment.
Hopefully this video will clear up some of the misunderstanding that happens around the New Jersey exit tax It’s a good question!
We get asked that quite a bit.
Thanks for tuning in and we’ll catch you on the next episode.
