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HomenewsWhat Are the Repercussions of New Jersey's Property Tax Laws on Our...

What Are the Repercussions of New Jersey’s Property Tax Laws on Our Home Sales in Florida?

Our principal residence is in New Jersey, and we have many investment properties there as well. We hope to homestead in Florida next year after selling our primary dwelling in New Jersey and designating our present home in Florida as our primary residence.

We hope to sell one of our New Jersey rental properties each year once we move to Florida. While New Jersey does have a state tax, Florida does not. When do we anticipate paying taxes?

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A. That’s fantastic news that you have such ambitious intentions.

Homeowners who sell their properties in New Jersey but stay in the state afterward are treated differently than those who leave.

According to Michael Eagan, director of national tax at CohnReznick in Holmdel, if you sell your principal residence and move out of New Jersey, the state will likely treat you as nonresidents for purposes of withholding on any tax on the gain from the sale.
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Nonresident sellers must have a percentage of the sales price withheld as an advance payment of any New Jersey tax owing with respect to the gain, he explained, in contrast to resident sellers who continue to maintain New Jersey residency and submit New Jersey resident tax returns.

The exit tax is what many people refer to this as.

If you submit a New Jersey tax return for the year of the sale as a part-year resident and as a nonresident, Eagan promises you’ll get a refund of whatever overpayment you made.

To paraphrase what he said: “Note that federal and New Jersey law both exclude up to $500,000 of the gain realized on the sale of a residence by a joint return filer — $250,000 for a single filer — provided that the home was both owned and used by the taxpayers as their principal residence for at least two out of the preceding five years.”

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Eagan warned that you should expect to pay state income tax on any profits made from the sale of your New Jersey investment properties.

You may need to file New Jersey tax returns as a nonresident (Form NJ-1040NR) in the years you sell New Jersey properties to record any gain attributable to those transactions, he added.

A portion of the sales price of each property will be withheld as an advance payment of New Jersey tax owed on any selling gain, and this is due regardless of whether or not you are a New Jersey resident, he explained.
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If more tax is withheld than is required, the extra is returned to the taxpayer.

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