Homeowners planning a move out of New Jersey may have questions about the state’s so-called “exit tax.” In a recent NJ Money Help article, Howard Hook, CFP®, CPA, CAP®, explains that the term is somewhat misleading because it is not actually a separate tax.
In his response, Howard explains that New Jersey’s “exit tax” is a withholding requirement that applies to certain real estate transactions. The purpose is to help ensure that any taxable gain from the sale is properly reported on a New Jersey income tax return. The amount withheld is generally calculated as the higher of 8.97% of the gain or 2% of the selling price.
Howard also discusses several exceptions to the withholding requirement. One of the most common exceptions applies to homeowners who qualify for the federal exclusion of gain on the sale of a primary residence under IRS Section 121. Another exception may apply to New Jersey residents who intend to maintain a permanent place of abode in the state after the sale.
Addressing the reader’s situation specifically, Howard notes that the primary residence exception would likely apply based on the facts presented. He also explains how the seller’s residency status and future plans could affect whether withholding would be required.
Read the original NJMoneyHelp.com article here: Will We Owe the ‘Exit Tax’ When We Sell Our Home?
Learn more about fee-only financial planner Howard Hook and how he helps clients make informed financial planning decisions through every stage of life.
