If you’re a non-resident selling investment real estate in New Jersey, there’s a unique NJ withholding tax you should be aware of. Both residents and non-residents always had to pay income tax on the gain upon the sale of real estate. This tax is required to be withheld for non-residents. The “Exit Tax”, which came into law six years ago, requires the seller to file a GIT/REP form (Gross Income Tax form) in order to record a Deed for the transfer of his property. When a non-resident sells the property, New Jersey will withhold this income tax in the amount of either 8.97 percent of the profit or 2 percent of the total selling price, whichever is higher. Therefore, even if the property is sold at a loss, tax must be withheld to fulfill the two percent requirement. When such a seller eventually files his NJ tax return he is refunded the difference between what was withheld and what was owed.
So who’s considered a “resident” and who’s a “non-resident” with regard to this tax? The law defines a resident taxpayer as one of the following:
- An individual who is and intends to continue to maintain a permanent place of abode (home, residence) in New Jersey on/after the day of transfer
- An estate established under the laws of New Jersey
- A trust established under the laws of New Jersey
A nonresident is simply defined as “any taxpayer that does not meet the definition of resident taxpayer.”