Besides federal income taxes, most people must pay some form of state or local tax, whether it's a sales tax, state income tax or property taxes. In New Jersey, one form of tax is the exit tax, which applies solely to certain residents and nonresidents who divest themselves of state-based residential property to relocate to another state. However, the exit tax does not actually add a new tax to the process of moving.
Tax Payment Policy
New Jersey's exit tax is a special tax payment policy, although it does not create any new tax liability. Instead, the New Jersey exit tax is a required estimated tax payment that resident and nonresident taxpayers who sell their homes in New Jersey to move out of state must pay. The amount of the exit tax is the standard state tax rate on the profit from a home sale.
Exit Tax Functionality
The purpose of New Jersey's exit tax is to ensure that residents and nonresidents who sell residential property in the state pay the appropriate tax on the profits, even if they move out of state before the end of the year and don't file a New Jersey state income tax return the following year. Since this tax is required by law, the exit tax simply requires the home sellers to pay it earlier than they otherwise would.
Exit Tax Exceptions
New Jersey's exit tax only applies to resident and nonresident residential homeowners who sell property in New Jersey to leave the state. New Jersey resident taxpayers who sell their homes but move to new homes within the state are not required to pay the exit tax, since they will pay the taxes on the profits from the sale when they file the following year's state income tax return.
While the exit tax uses the same sales tax rate as other transactions in New Jersey, one exception applies for homeowners who only realize a small profit from the sale. The alternative minimum amount of the exit tax is 2 percent of the total home sale price.
Tax Return Filing
In some cases, New Jersey residents may pay the exit tax and still file a New Jersey NJ 1040 income tax return, either to claim other New Jersey income or after moving back into the state within the same year. NJ 1040 filers can deduct the exit taxes they paid, while also claiming their home sale profits as income. This may create a full or partial refund, depending on the taxpayer's income and status. For residents who don't pay the exit tax, the NJ 1040 form is the correct place to claim home sale profits and pay taxes on them.