The NJ exit tax is one of the most misunderstood tax provisions in the state. It’s not an extra tax — it’s an acceleration of tax you would owe anyway.
What It Actually Is
When you sell your NJ home and move out of state, NJ requires a prepayment of estimated income tax on the gain. The prepayment is the greater of 8.97% of the gain or 2% of the total selling price.
How It Works at Closing
The seller’s attorney or title company withholds the estimated payment from proceeds and remits it to NJ. If the primary residence exclusion covers your gain, you may owe little — but withholding still occurs.
Getting Your Money Back
File a final NJ non-resident return. The estimated payment shows as a credit. If withholding exceeds your actual liability, you receive a refund.
The Bottom Line
The exit tax is a cash flow issue, not an extra tax. Plan ahead and you’ll be fine.
Disclaimer: The information provided is for general educational purposes only and does not constitute tax, legal, or investment advice. This content is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. Tax outcomes depend on your specific facts and circumstances. Viewing this material does not create a CPA-client relationship. Personalized advice is provided only through a signed engagement letter.
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