We want to close on the sale of our home, which we purchased in 1993 for $237,000, at the asking price of $665,000 by the end of the year.
With 29 years under our belts, it stands to reason that we have sunk a lot of cash into renovations. A handful of invoices wea. Please accept our condolences on the selling of your property and our deep regrets for your impending departure.
There are a number of factors to think about.
First, according to Michael Eagan, director of national tax for CohnReznick in Holmdel, both federal and New Jersey law exclude up to $500,000 of the gain realized on the sale of a primary residence by a joint return filer, or $250,000 for a single filer, provided the home was both owned and used as a residence for at least two out of the preceding five years.
Those two conditions are definitely met in your scenario.
He said your $428,000 profit will be completely disregarded because of how long you’ve lived there (29 years) and not because of any renovations you’ve done to the house.
Since your gain is below the exclusion even without the capital upgrades, it is unlikely that you will be requested to provide evidence of the expenditures, such as invoices, receipts, canceled checks, etc., Eagan said.
Although it’s quite unlikely that you’ll be required to provide proof of the sums in question, “you should record the proper gain — including the upgrades.”
Now we get to the bogus “exit tax,” which is actually an estimated tax on the home’s sale price.
According to Eagan, the state of New Jersey handles sellers who are staying in the state differently from those who are leaving the state when it comes to selling their homes.
The state of New Jersey would classify you as a “nonresident” for the purposes of the transaction since you intend to relocate to Delaware.
To cover the tax bill associated with the sale, he explained, “an exit tax” might be withheld from the proceeds of the transaction.
Since your gain is less than the New Jersey exclusion threshold of $500,000, any money withheld from your paycheck should be refundable after being offset by any other New Jersey tax liability.