The NJ Exit Tax: What Nonresident Sellers Need to Know Before Closing

New Jersey’s so-called “exit tax” isn’t an additional tax imposed simply because a person moves out of the state or sells New Jersey property. It is a necessary prepayment of estimated New Jersey Gross Income Tax for some nonresident sellers who transfer real estate in the state. The cash paid at closing is credited toward the seller’s New Jersey income tax liability.

The calculation is straightforward on paper: the estimated payment is 10.75% of the taxable gain or 2% of the sale price, or consideration, stated in the deed, whichever is greater. If the seller has little or no gain, the 2% minimum can still be applied unless the transaction qualifies for an exemption or waiver.

The requirement is generally applicable to nonresident holders of property, as well as to estates and trusts that sell real estate in New Jersey. In the course of recording the deed, the appropriate GIT/REP form must be completed along with any estimated tax bill that is due. If the seller qualifies for an exemption or waiver, the form must also show that the payment requirement does not apply.

What Is the NJ Exit Tax (GIT/REP Estimated Payment)?

New Jersey law does not require a separate tax just because a property owner leaves the state. Instead, N.J.S.A. 54A:8-8 through 54A:8-10 require some nonresident sellers of New Jersey real estate to make an estimated Gross Income Tax payment when the property is sold or transferred.

The requirement exists because a nonresident seller may have little or no continuing connection to New Jersey after the transaction is complete. Requiring an estimated payment at or before closing allows the State to collect a portion of the anticipated Gross Income Tax before the seller leaves with the proceeds rather than relying solely on a later nonresident tax return.

The tax requirement is tied directly to the recording of the deed. A GIT/REP form must accompany a deed transferring New Jersey real property, and when an estimated payment is due, the appropriate form and payment must be submitted as part of the recording process. The county clerk cannot record the deed without the required GIT/REP documentation establishing either that the estimated tax has been paid or that the transaction qualifies for an exemption or waiver.

The amount paid at closing is not necessarily the seller’s final New Jersey tax bill. It is an estimated payment that is credited against the seller’s actual Gross Income Tax liability. When the seller later files Form NJ-1040NR, the estimated payment made through the GIT/REP process is reported as a credit on the return. If the amount prepaid exceeds the seller’s actual liability, the excess may be refundable, subject to the normal tax filing rules.

Who Pays the NJ Exit Tax? Nonresident Sellers, Estates, and Trusts

New Jersey’s estimated Gross Income Tax payment requirement generally applies to nonresident individuals, estates, and trusts that sell or transfer real property located in the state. Sellers who qualify for one of the exemptions or assurances on Form GIT/REP-3 may avoid making the estimated payment at closing, but they still must provide the proper documentation so the deed can be recorded.

For individuals, residency is determined as of the date of closing. This distinction can be important when a New Jersey homeowner is preparing to relocate. For example, suppose a seller closes on the sale of a New Jersey home while it is still their primary residence and they remain a New Jersey resident on that date. Even if they move to Florida the following month, they can generally certify their New Jersey residency on Form GIT/REP-3 by checking Box 1. The Division of Taxation specifically provides that a seller who is a New Jersey resident at closing may use Box 1 even if the seller later becomes a nonresident.

That timing can matter for shore homeowners and other property owners planning a permanent move out of New Jersey. If the sale closes while the seller still qualifies as a New Jersey resident, the nonresident estimated tax payment generally is not required at closing. By contrast, changing domicile before the property is sold can place the seller within the nonresident payment rules unless another exemption applies. Because residency depends on the seller’s actual circumstances and intent, homeowners should not assume that simply changing an address establishes or ends New Jersey residency.

Business entities are treated differently. Corporations, partnerships, limited partnerships, S corporations, certain business trusts, LLCs taxed as corporations or partnerships, and similar entities are not subject to the nonresident estimated Gross Income Tax payment applicable to individuals, estates, and trusts. They generally complete Form GIT/REP-3 and check Box 5 to establish that the seller is a business entity rather than an individual, estate, or trust.

A single-member LLC requires closer attention. When a nonresident single-member LLC is treated as a disregarded entity and its owner reports the transaction as an individual for income tax purposes, the seller may still be subject to the individual nonresident requirements and may need to file Form GIT/REP-1 and make the estimated payment. A nonresident single-member LLC that files as an individual must still file the GIT/REP-1.

How the NJ Exit Tax Is Calculated: 10.75% of the Gain vs. 2% of the Sale Price

The estimated New Jersey Gross Income Tax payment is calculated from two figures. First, the seller calculates the gain from the transaction and multiplies it by New Jersey’s highest Gross Income Tax rate (currently 10.75%), then compares that amount with 2% of the total consideration in the deed. The seller usually has to pay the higher of the two.

For most residential sales, the gain starts with the sale price and subtracts the seller’s adjusted basis in the property and allowable selling expenses. The adjusted basis generally starts with the original purchase price and can be increased by qualifying capital improvements and adjusted for other items recognized under tax law.

New Jersey generally uses the cost or adjusted basis for federal income tax purposes, but some property may need additional New Jersey adjustments. When the basis calculation is very complicated, especially when a home has been owned for many years, inherited, rented or substantially improved, sellers should contact a CPA or other qualified tax professional for verification.

For example, assume a nonresident seller transfers a New Jersey property for $600,000:

Adjusted Basis	Gain	10.75% of Gain	2% of Sale Price	Estimated Payment
$350,000	$250,000	$26,875	$12,000	$26,875
$560,000	$40,000	$4,300	$12,000	$12,000
Property sold at a loss	No taxable gain	$0	$12,000	$12,000*

*Even when the transaction produces no gain, New Jersey generally requires the nonresident seller to pay at least 2% of the consideration at closing unless the seller qualifies for an exemption or obtains an approved waiver.

The amount collected at closing should not be confused with the seller’s final New Jersey tax liability. It is an estimated payment. When the seller later files a New Jersey nonresident income tax return, the actual tax is calculated under the State’s graduated Gross Income Tax rates, and the amount already paid through the GIT/REP process is applied as a credit. If the estimated payment exceeds the seller’s actual tax liability, the seller may claim the resulting overpayment as a refund.

NJ Exit Tax Exemptions on Form GIT/REP-3

Not every nonresident seller must make an estimated Gross Income Tax payment at closing. Form GIT/REP-3 contains a series of “Seller’s Assurances” that allow qualifying sellers to certify that the payment requirement does not apply to their transaction. The current form provides several exemptions that commonly arise in residential real estate transactions.

New Jersey residents. Box 1 applies when the seller is a New Jersey resident taxpayer on the date of the transfer and will report any taxable gain on a New Jersey resident Gross Income Tax return. This is why a seller’s residency status at closing can be important when someone is preparing to move out of state.

Principal residences. Box 2 applies when the property was used exclusively as the seller’s principal residence within the meaning of Internal Revenue Code §121. That federal provision generally allows qualifying homeowners to exclude up to $250,000 of gain, or up to $500,000 for certain married couples filing jointly. For purposes of the GIT/REP exemption, the Division states that the seller must be able to exclude the entire gain. If some gain remains taxable, it must still be reported on the seller’s New Jersey return. The current instructions also permit a seller who later determines that the gain exceeds the exclusion to make an estimated payment directly to the State using Form NJ-1040-ES after the deed is recorded.

Business entities. Box 5 applies when the seller is not an individual, estate, or trust and therefore is not subject to the estimated Gross Income Tax payment requirement. This commonly includes corporations, partnerships, and other qualifying business entities.

Like-kind exchanges. Boxes 7a and 7b address transactions in which gain is not currently recognized for federal income tax purposes, including qualifying exchanges under Internal Revenue Code §1031. A seller completing a 1031 exchange must identify the value of the like-kind property received. If the exchange is only partially tax-deferred because the seller also receives cash or other non-like-kind property, the nonexempt portion may still require an estimated payment or later estimated tax payment.

Transfers related to divorce. Box 12 applies to certain transfers between spouses or transfers incident to divorce under Internal Revenue Code §1041. A transfer is generally considered incident to divorce when it occurs within one year after the marriage ends or when the transfer is related to the end of the marriage. This can allow property transferred pursuant to a divorce decree or property settlement agreement to avoid the estimated payment at the time of transfer.

Transactions with no net proceeds. Box 14 applies when the seller receives no net proceeds from the transaction, meaning there is no amount due to the seller on the settlement statement. One example is a transaction in which all sale proceeds are used to satisfy the lender. The exemption may also apply to someone who was listed on the deed and mortgage only as a co-signer and receives nothing from the sale. The Division specifically instructs a mortgage co-signer receiving zero proceeds to report zero consideration and use Box 14.

There are also limited transactions for which no GIT/REP form or estimated payment is required at all. New Jersey expressly exempts a sheriff’s deed issued through a foreclosure sale and a bankruptcy trustee’s deed issued in a bankruptcy proceeding from the GIT/REP filing and payment requirements.

Selling at a Loss? How to Request a GIT/REP-4 Waiver

A nonresident seller who expects to incur a capital loss on the sale of New Jersey real estate does not simply claim an exemption on Form GIT/REP-3. Instead, the seller must request a waiver of the estimated Gross Income Tax payment requirement from the New Jersey Division of Taxation using Form GIT/REP-4. The Division specifically identifies a capital loss on the sale of property as one of the circumstances in which a waiver may be appropriate.

The waiver request should be submitted well before closing. The Division recommends filing it at least 14 days before the scheduled closing date to allow time for review. A completed GIT/REP-4 should be accompanied by supporting documents, including a copy of the deed by which the seller originally acquired the property, the proposed deed for the new transfer, the settlement statement or closing disclosure, and a letter explaining why the waiver is being requested.

If the claimed loss results from money the seller spent improving the property, additional documentation is required. The seller should provide an itemized list of the capital improvements together with the dollar amount attributable to each improvement. This allows the Division to evaluate how those expenditures affect the seller’s adjusted basis and claimed loss.

Timing is especially important because Form GIT/REP-4 is available only before the deed is recorded. Once the county clerk has recorded the deed, the seller can no longer use the waiver procedure to recover an estimated payment. At that point, the seller generally must pursue a refund by filing Form A-3128, Claim for Refund of Estimated Gross Income Tax Payment Required on the Sale of Real Property Located in New Jersey.

Prepaying the NJ Exit Tax With Form GIT/REP-2

A nonresident seller does not necessarily have to wait until closing to make the estimated Gross Income Tax payment. New Jersey allows the seller to prepay the amount by using Form GIT/REP-2, the Nonresident Seller’s Tax Prepayment Receipt. To use this option, the seller completes the required forms and makes the estimated payment in person at one of the New Jersey Division of Taxation’s Regional Information Centers before closing. Once payment is received, a Division employee certifies the GIT/REP-2 with the Division’s raised seal.

The certified GIT/REP-2 then serves as proof that the estimated tax has already been paid. The seller gives the original certified form to the settlement agent at closing, and the settlement agent submits it with the deed and other required recording documents to the appropriate county clerk. The raised seal is important because the GIT/REP-2 is not valid without it.

Unlike several other GIT/REP forms, Form GIT/REP-2 cannot be submitted electronically. The Division requires the original form bearing the physical raised seal to be delivered to the county clerk. A scanned copy or electronically filed version does not satisfy this requirement.

Prepaying can be particularly useful for a nonresident seller who does not have a Social Security number or Individual Taxpayer Identification Number. In that situation, additional tax-identification paperwork may otherwise complicate the recording process. The Division specifically notes that obtaining an approved GIT/REP-2 before closing may reduce potential recording delays for these sellers.

How to Get an NJ Exit Tax Refund: Form NJ-1040NR vs. Form A-3128

Because the New Jersey exit tax is an estimated payment rather than a separate tax, a nonresident seller may be entitled to recover some or all of the amount paid at closing. There are two primary ways to request the refund. The seller can claim the excess payment when filing Form NJ-1040NR for the year of the sale, or the seller can file Form A-3128, Claim for Refund of the Estimated Gross Income Tax Payment for the Sale of New Jersey Real Estate.

Which route makes the most sense often depends on when the property was sold. The Division of Taxation explains that Form A-3128 may be the faster option when a sale occurs earlier in the year because the seller does not have to wait until the following tax-filing season to request the refund. If the sale occurs toward the end of the year, it may be simpler to claim the excess payment directly on the NJ-1040NR rather than file both forms. Filing an A-3128 does not eliminate the seller’s obligation to file the required NJ-1040NR for the year of the sale.

Form A-3128 can also be used when the seller paid the estimated tax even though a GIT/REP-3 exemption actually applied. In that situation, the seller should include a completed copy of Form GIT/REP-3 identifying the applicable exemption with the refund claim.

New Jersey residents occasionally have an estimated payment withheld in error as well. A resident seller may seek a refund using Form A-3128 or claim the amount on Form NJ-1040. If the original New Jersey return has already been filed without claiming the payment, the seller may instead use Form NJ-1040X, provided the refund claim is still within the applicable statute of limitations.

Special GIT/REP Situations: Estates, Divorce, Power of Attorney, and Foreign Sellers

Some real estate transfers involve additional GIT/REP requirements because of the identity of the seller, the way the property is being transferred, or difficulties obtaining required signatures.

Estates and heirs. When an estate or trust sells New Jersey real property, the GIT/REP form is completed using the estate’s or trust’s information. Each executor, administrator, or trustee who is listed in that capacity on the deed and is required to sign the deed must also complete and sign the appropriate GIT/REP form. If the estate or trust is a New Jersey resident, its representatives may use Form GIT/REP-3 and provide the county clerk with documentation establishing the estate’s or trust’s New Jersey residency.

A beneficiary who receives property through an estate and later sells it outside the terms of the estate is treated separately. In that situation, the beneficiary becomes the seller and must complete the appropriate GIT/REP form based on the beneficiary’s own residency status.

Divorce-related transfers. A transfer between former spouses may qualify for the Box 12 exemption on Form GIT/REP-3 when it is incident to divorce under Internal Revenue Code §1041. Problems can arise when both parties are required to participate in the transfer but one former spouse refuses to sign the necessary GIT/REP documentation. The Division identifies court-ordered real estate transfers, including divorce matters in which a spouse refuses to sign the GIT/REP-3, as circumstances in which a GIT/REP-4 waiver may be considered.

Sales involving a power of attorney. A seller does not always have to sign the GIT/REP form personally. An authorized representative may sign on the seller’s behalf when the representative has a valid power of attorney or other written authority. The person signing should make clear that the signature is being made in a representative capacity and provide the supporting authorization required for the transaction.

Foreign sellers. A nonresident foreign seller who does not have a Social Security number may still complete the GIT/REP process. If the seller has an Individual Taxpayer Identification Number, that number can be used where appropriate. If the seller has applied for a federal taxpayer identification number but has not yet received it, the Division instructs the seller to attach a completed Form W-7 application to the GIT/REP-1 submitted with the deed for recording.

Domestic violence and protective orders. The Division also recognizes that obtaining another seller’s signature may be unsafe or impracticable in domestic violence or abuse situations. When a protective order is in place and obtaining the required signature would create personal safety concerns, the seller should contact the GIT/REP Unit to discuss permissible ways to complete the filing requirements. The Division expressly provides for this type of situation rather than requiring the protected party to place themselves at risk to obtain a co-seller’s signature.

NJ Exit Tax vs. Realty Transfer Fee vs. Mansion Tax

The New Jersey exit tax is only one of several amounts that may affect a real estate closing. It is separate from both the Realty Transfer Fee and the Graduated Percent Fee, commonly associated with New Jersey’s “mansion tax.” Understanding the distinction matters because the charges serve different purposes and are treated differently after closing.

Charge	What It Is	Who Pays	Is It Refundable?
NJ exit tax / GIT/REP payment	An estimated prepayment of New Jersey Gross Income Tax on the seller’s gain	Certain nonresident individuals, estates, and trusts	Yes, to the extent the estimated payment exceeds the seller’s actual New Jersey tax liability
Realty Transfer Fee	A fee imposed when a deed transferring New Jersey real property is recorded	Seller	Generally no routine refund, although refunds may be available for an overpayment or when an exemption should have applied
Graduated Percent Fee, often called the Mansion Tax	A supplemental transfer fee that applies to certain higher-value real estate transfers	Seller	Generally no routine refund, subject to limited statutory refund procedures

The Realty Transfer Fee and Graduated Percent Fee are actual costs of transferring qualifying New Jersey real estate. They are separate from, and may be owed in addition to, any estimated Gross Income Tax payment required through the GIT/REP process. The Division of Taxation expressly treats the Realty Transfer Fee as separate from the nonresident Gross Income Tax withholding rules.

The distinction is especially important because the GIT/REP payment is reconciled later when the seller files a New Jersey income tax return. By contrast, the Realty Transfer Fee and Graduated Percent Fee generally remain transaction costs unless the seller qualifies for a specific exemption, refund, or correction procedure.

The rates and thresholds for the Realty Transfer Fee and Graduated Percent Fee are outside the scope of this article. For a closer look at the current rules applicable to higher-value property transfers, see our guide to New Jersey’s mansion tax.

How a New Jersey Real Estate Attorney Can Help With the Exit Tax

The New Jersey exit tax can cause problems long before the deed reaches the county clerk. A real estate attorney can check the seller’s residency status, determine whether an exemption or waiver applies, and identify the correct GIT/REP form before the transaction moves forward. That review can be especially important when a seller is moving out of New Jersey, selling through an estate or trust, completing a 1031 exchange or expecting little or no taxable gain.

An attorney can also prepare a GIT/REP-4 waiver request in advance so that the Division of Taxation has time to review it before closing. Once the transaction is moving forward, the attorney works with the settlement agent to confirm that the required forms, payments, and supporting documents are in place. Addressing these issues before the deed is submitted for recording can help avoid delays at the end of the transaction.

Attorney Insight: Time Your Closing Before You Move Out of New Jersey

If you are planning to sell your New Jersey home and move out of state, the timing of the closing can matter. Residency is determined as of the date of closing for GIT/REP purposes. Before changing domicile or finalizing a move, discuss the planned closing date with your real estate attorney and tax professional. In some cases, closing while you are still a New Jersey resident may eliminate the need for the nonresident estimated tax payment at closing.

Sellers should understand the GIT/REP provisions before they sit down to close, rather than waiting until it is too late. The Bronzino Law Firm can review the transaction, help you understand what filing requirements apply, and coordinate the documents before the sale is completed.

Whether you are relocating out of state, selling inherited property, or transferring a home as part of a divorce, the Bronzino Law Firm can help you confirm which GIT/REP requirements apply before your closing date. Visit our office at 1707 Atlantic Avenue, Building 2, Suite 2, Manasquan, NJ 08736, call (732) 812-3102, or contact us online to schedule a confidential consultation.