NJ Exit Tax Explained: What You Owe When Selling Property and Leaving New Jersey
- Gregory Monaco, CPA
- Dec 27, 2025
- 4 min read
The NJ exit tax is a withholding requirement—not an additional tax—that applies when selling New Jersey property while moving out of state or as a non-resident. The withheld amount equals the greater of 2% of the sale price or 8.97% of the estimated gain, collected at closing and applied toward your state income tax liability.
What Is the NJ "Exit Tax"?
Despite its name, there is no separate "exit tax" in New Jersey. What people call the exit tax is actually the GIT/REP withholding—an estimated tax payment collected from sale proceeds when you sell NJ property and are moving out of state or already a non-resident.
When Does Withholding Apply?
You're moving out of New Jersey
You're already a non-resident selling NJ property
Withholding Amount
The amount withheld is the greater of:
2% of the total sale price, OR
8.97% of the estimated gain
How the Withholding Is Calculated
Method 1: 2% of Sale Price
Sale price: $800,000
Withholding: $800,000 × 2% = $16,000
Method 2: 8.97% of Estimated Gain
Sale price: $800,000
Original purchase price: $400,000
Improvements: $50,000
Cost basis: $450,000
Estimated gain: $350,000
Withholding: $350,000 × 8.97% = $31,395
Amount withheld: $31,395 (the greater of the two calculations)
Your Actual Tax May Be Much Lower
The withholding amount is often significantly higher than your actual tax liability for several reasons.
Primary Residence Exclusion
If the property was your primary residence for at least 2 of the last 5 years, you may exclude up to $250,000 of gain (single) or $500,000 (married filing jointly). This exclusion applies for NJ purposes too.
Example:
Gain: $350,000
Exclusion (married): $500,000
Taxable gain: $0
Actual NJ tax owed: $0
But you still had $31,395 withheld at closing. You'll receive a refund when you file your NJ return.
Lower Actual Tax Rate
The 8.97% withholding rate is NJ's top capital gains rate. Your actual rate depends on your total income and may be lower (5.525%, 6.37%, etc.).
How to Reduce Withholding at Closing
Form GIT/REP-3: Seller Is Still NJ Resident
If you're still a NJ resident at closing and the property isn't your principal residence, filing Form GIT/REP-3 may eliminate withholding entirely.
Form GIT/REP-4: Request Reduced Withholding
If your estimated gain is significantly less than what the 2% formula would produce, file Form GIT/REP-4 to reduce the withholding amount.
The Withholding Process
At closing: Buyer's attorney or title company calculates the withholding
Withholding: Amount is deducted from your sale proceeds
Remittance: Withheld amount is sent to NJ Division of Taxation
At tax time: You file your final NJ return and report the sale
Reconciliation: Overpayment results in refund; underpayment requires additional tax
Special Situations
Investment Property
Unlike primary residences, investment properties don't qualify for the capital gains exclusion. The full gain is taxable. However, a 1031 exchange (reinvesting proceeds into another investment property) can defer the gain and potentially avoid withholding.
Inherited Property
If you inherited the property, your cost basis is the fair market value at the date of death (stepped-up basis). This typically means much lower—or no—taxable gain.
Example:
Parents bought home for $100,000 in 1980
Fair market value at death: $700,000
Your cost basis: $700,000
Sale price: $750,000
Taxable gain: $50,000 (not $650,000)
Tax Planning Before You Sell
Document your cost basis: Gather records of original purchase price plus capital improvements
Time the sale strategically: If close to meeting the 2-year residency requirement, waiting may save significant taxes
Consider filing GIT/REP-4: Reduce withholding if estimated tax is less than 2% of sale price
Coordinate with your new state: Establish clear residency in your new state
Work with a CPA before closing: Minimize withholding legally and ensure accurate filings
How Monaco CPA Helps with NJ Property Sales
Monaco CPA helps Essex County homeowners and investors navigate the GIT/REP withholding process through pre-sale tax planning, GIT/REP form preparation, NJ final-year return preparation, and multi-state coordination.
Phone: (862) 320-9554
Email: greg@monacocpa.cpa
Gregory Monaco, CPA, MBA — Livingston, NJ | Serving Essex County and all of New Jersey
Frequently Asked Questions
Is the exit tax a penalty for leaving New Jersey?
No. It's simply an estimated payment of capital gains tax you would owe anyway. The withholding collects it upfront rather than waiting until you file your return.
What if the withholding is more than I owe?
You'll get a refund when you file your NJ return. Filing early (January or February) speeds up your refund.
Is the NJ exit tax the same as capital gains tax?
Yes. What's called the "exit tax" is estimated capital gains tax collected at closing. Your actual tax is calculated when you file your return.
What if I sell at a loss?
If you sell for less than your cost basis, you have no gain and owe no tax. However, withholding may still occur. Filing Form GIT/REP-4 showing zero gain can eliminate withholding.
How long does it take to get my refund?
Typically 8-12 weeks after filing your return. Filing electronically and early in the season speeds this up.
Does withholding apply to commercial property?
Yes. The GIT/REP rules apply to all real property in New Jersey, including commercial and investment properties.
Last updated: December 2025. Tax laws change frequently. Consult with a qualified CPA for advice specific to your situation.
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