I have to sell my N.J. vacation home. What taxes are owed?

By Karin Price Mueller | NJMoneyHelp.com for NJ.com



Q. I have been a resident of Florida for the past 20 years. I am 81 years old. In 2017, I bought a vacation home with the hope of spending the summer months in Cape May. COVID, health and personal commitments prevented that from happening. I bought the house for $76,000 and now have an offer of $90,000. What taxes will I owe to New Jersey and will money be held in escrow at closing?


— Trying to help


A. We’re sorry to hear you haven’t been able to make it back to Jersey.


There are several tax issues for you to consider.


New Jersey has enacted legislation to protect the state from a non-resident who sells real estate in New Jersey but then skips out by not paying the income taxes on the gain on the sale of the property, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.


That’s the so-called exit tax.


For this, the state requires the home’s seller to make an estimated income tax payment at the time of the settlement, Kiely said.


“The state requires the seller to pay at closing the larger of two numbers,” he said. “The first is 2% of the gross sales price, which in your case would be $1,800. The second number is the gain on the sale times New Jersey’s highest tax rate, which is 10.75%.”


You say you have an offer of $90,000 for your New Jersey house. From this, you subtract sales commission paid to your real estate agent, legal fees you paid and realty transfer fees, Kiely said.


These costs lower your net proceeds from the sale.


You would then subtract your $76,000 purchase cost to reach your taxable gain on the sale, Kielty said.


If you had, say, an $8,000 net gain, the tax would amount to $860 ($8,000 X 10.75%), Kiely said.


“The rule is you pay at closing the higher of the two numbers, so, you would have to make an estimated income tax payment at closing of $1,800,” Kiely said. “At tax time you would file a New Jersey Non-Resident income tax return. When you file the return, you would receive a partial refund because the 10.75% tax rate is for taxable income over $1 million.”


Email your questions to Ask@NJMoneyHelp.com.


Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.

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