The NJ Exit Tax: How It Works, What You Owe, and How to Get Your Money Back

The NJ "exit tax" is not a separate tax. It is an estimated Gross Income Tax prepayment equal to the greater of 10.75% of your gain or 2% of the sale price, collected at closing under N.J.S.A. 54A:8-8 through 8-10.

The name is misleading and the most commonly cited rate is wrong. Many CPA and law firm websites still cite 8.97%, which has been outdated since 2018. The NJ Division of Taxation FAQ, Technical Bulletin TB-57(R) (revised September 30, 2025), and the current GIT/REP-1 form all confirm the rate is 10.75%, reflecting the highest marginal Gross Income Tax rate under N.J.S.A. 54A:2-1.

This guide covers the full calculation, every GIT/REP form, who’s exempt, how the §121 exclusion works, inherited and investment property, and how to recover your overpayment.

Why Does New Jersey Require an Exit Tax When You Sell Property?

Before 2004, nonresidents and people moving out of state frequently sold NJ real estate, realized substantial capital gains, and simply never filed a NJ nonresident income tax return. Because a state government lacks the jurisdictional authority to easily compel tax collections from individuals domiciled elsewhere, millions of dollars in tax revenue were lost annually. P.L. 2004, c.55 (effective August 1, 2004) closed this loophole by mandating that an estimated tax payment must be secured before a county recording officer can legally record a deed.

How the NJ Exit Tax Is Calculated

The estimated tax prepayment equals the greater of (A) 10.75% of the gain reportable for federal income tax purposes, or (B) 2% of the total consideration stated in the deed. The 2% is a floor, not a cap.

"Gain" is computed identically to the federal capital gain calculation. Per the NJ Division of Taxation: "A capital gain is calculated the same way as for federal purposes." Adjusted basis includes the original purchase price, closing costs at acquisition, and capital improvements, minus depreciation.

NJ depreciation wrinkle: For rental/investment properties placed in service on or after January 1, 2004, NJ did not conform to federal bonus depreciation or §179 expensing. The GIT-DEP worksheet is required to calculate NJ-adjusted basis.

"Consideration" means the entire compensation including mortgage balances assumed by the buyer and liens not satisfied at closing. A seller netting $200,000 from a $500,000 sale with a $300,000 assumed mortgage faces the 2% floor on $500,000.

For estates and trusts, gain is computed without reduction for distributions to beneficiaries (N.J.S.A. 54A:8-9(c)).

Why 10.75% and Not 8.97%

N.J.S.A. 54A:8-9(a) requires the "highest rate of tax for the taxable year." Rate history: 8.97% (2004–2017), 10.75% on $5M+ (P.L. 2018, c.45), 10.75% on $1M+ (P.L. 2020, c.118). The 8.97% bracket still exists for $500K–$1M income, which is why it persists in outdated sources. Using 8.97% at closing blocks deed recording.

The Five GIT/REP Forms

New Jersey has five GIT/REP forms: GIT/REP-1 (payment), GIT/REP-2 (prepayment receipt), GIT/REP-3 (16-box exemption form), GIT/REP-4 (waiver request), and GIT/REP-4A (corrective deed). Every deed recording requires one.

GIT/REP-1 (Payment): Nonresidents complete and present to the settlement agent at closing with a check to "State of NJ – Division of Taxation." Includes NJ-1040-ES voucher. County clerk forwards payment to Trenton.

GIT/REP-2 (Prepayment): Prepay at a Division Regional Information Center before closing. Requires physical raised seal. Cannot be submitted electronically.

GIT/REP-3 (Exemption): 16 seller’s assurance boxes. Key ones: | Box | Exemption | Use Case | |-----|-----------|----------| | 1 | Seller is NJ resident (will file NJ-1040) | NJ residents staying in state | | 2 | Primary residence under IRC §121 | Gain under $250K/$500K exclusion | | 5 | Entity seller (corp, partnership, LLC) | Business entities — not subject to GIT | | 7a | Gain not recognized (§1031, §721, §1033) | Like-kind exchanges | | 8 | Estate distribution to heir | Executor distributing inherited property | | 9 | Short sale (all proceeds to mortgagee) | Underwater sales | | 12 | Spousal/divorce transfer under IRC §1041 | Divorce property transfers | | 14 | Seller receives no net proceeds | No proceeds at closing | | 16 | Active-duty military deployment | Deployed service members |

Also available: Box 3 (foreclosure), Box 4 (government/GSE), Box 6 (≤$1,000 consideration), Box 7b (like-kind only), Box 10 (pre-8/1/2004 deed), Box 11 (relocation company), Box 13 (cemetery plot), Box 15 (retirement trust).

GIT/REP-4 (Waiver): For capital losses, court-ordered transfers, unlocatable sellers. Submit to GIT/REP Unit at least 14 days before closing. Division affixes raised seal if approved.

GIT/REP-4A (Corrective): For corrected deeds with no consideration. Filed directly with county clerk, no Division approval.

E-Signature Rules (P.L. 2021, c.179)

GIT/REP-1, 3, and 4A may be e-signed (e.g., via DocuSign) only if executed simultaneously with an e-notarized deed. GIT/REP-2 and 4 cannot be e-signed — both require physical submission for the Division’s raised seal. Nonresidents doing fully remote closings must navigate these requirements carefully to avoid deed rejection.

If a representative signs any GIT/REP form, the Power of Attorney must be recorded with the deed, or a signed authority letter must be attached.

County Enforcement Is Getting Stricter

Counties are increasingly enforcing form version requirements. Bergen County’s Clerk office issued a public notice requiring that all GIT/REP forms signed on or after October 1, 2025 must be the most recent versions (8-25) — older versions are rejected outright and will delay your closing. The statute also defines "administrative costs" as $10 per estimated gross income tax form filed with a county recording officer, which may be retained by the county treasurer.

Does the §121 Primary Residence Exclusion Eliminate My NJ Exit Tax?

NJ fully conforms to the federal primary residence exclusion under N.J.S.A. 54A:6-9.1. If your entire gain is under $250,000 (single) or $500,000 (MFJ), file GIT/REP-3 Box 2 at closing and owe nothing.

N.J. Admin. Code § 18:35-2.4 confirms: "Any amount that is excludable from income for Federal income tax purposes is excludable for New Jersey income tax purposes." The conformity is election-dependent — must claim on federal return first.

When gain exceeds the exclusion: Box 2 is unavailable. Two options per TB-57(R): (1) file GIT/REP-1 and pay on the full gain, claim §121 on NJ-1040-NR for refund; or (2) check Box 2 and submit a separate NJ-1040-ES payment for the taxable portion exceeding the exclusion (no second GIT/REP form needed).

Pending legislation: S1440/S3931 would double the NJ exclusion to $500,000/$1,000,000. Not enacted as of March 2026.

The "Exclusively" Trap for Mixed-Use Properties

The statute requires the property to have been used "exclusively" as the principal residence. If the transfer includes principal residence plus other real property, the taxpayer must file GIT/REP-1 and pay estimated tax on the gain attributable to the non-residential portion. This is a common gotcha for: - Mixed-use properties (home with a commercial component) - Multi-family homes where a unit was rented out - Properties with separate lots or land parcels, depending on facts

If any portion of the property was rented or used for non-residential purposes, the "exclusively" requirement may disqualify the entire property from Box 2. Consult a CPA before assuming principal residence treatment applies.

How Is Inherited Property Treated Under the NJ Exit Tax?

For estate-to-heir transfers, file GIT/REP-3 Box 8 with no withholding. When an heir later sells, basis is stepped up to fair market value at date of death. Nonresident heirs must still file GIT/REP-1.

NJ-domiciled estates are treated as residents; out-of-state estates are nonresidents. Nonresident estates compute gain without reduction for distributions to beneficiaries (N.J.S.A. 54A:8-9(c)). Practitioners should have a qualified appraisal as of date of death.

The Nonresident Heir Trap

This is the scenario that generates the most frustration: A nonresident heir inherits a NJ property with a stepped-up basis, sells it shortly after at roughly the same price (zero or minimal gain), can’t claim §121 because they never lived there as a principal residence, and still owes the 2% floor on the full sale price. For a $500,000 property with zero gain, that’s $10,000 withheld at closing — the entire amount eventually refunded, but the funds are locked up until the NJ-1040-NR is filed and processed.

If the heir can demonstrate a capital loss (stepped-up basis exceeds sale price), a GIT/REP-4 waiver is the appropriate path to avoid the 2% floor entirely.

While NJ abolished its Estate Tax in 2018, the NJ Inheritance Tax still exists. Transfers to Class A beneficiaries (spouses, children, parents, grandchildren) are completely exempt from the Inheritance Tax, making the GIT/REP withholding the primary tax hurdle for most family members inheriting property.

How Does the NJ Exit Tax Apply to Investment and Rental Property?

Investment property receives no §121 protection. Nonresident sellers are limited to §1031 exchange (Box 7a), no net proceeds (Box 14), short sale (Box 9), or a GIT/REP-4 waiver for losses.

NJ depreciation adjustments are critical. The GIT-DEP worksheet is required for properties placed in service after January 1, 2004. Depreciation recapture follows federal rules but all gain (including recapture) is taxed as ordinary income at NJ graduated rates (1.4%–10.75%). NJ does not distinguish long-term from short-term.

Worked Examples

All examples: nonresident seller, current 10.75% rate. Withholding = greater of 10.75% × gain or 2% × sale price.

$400K Primary Residence | Scenario | Basis | Gain | 10.75%×Gain | 2%×Price | Withholding | |----------|-------|------|-------------|----------|-----------| | Low gain | $350K | $50K | $5,375 | $8,000 | $8,000 (floor) | | Moderate | $250K | $150K | $16,125 | $8,000 | $16,125 | | §121 single | $250K | $150K | — | — | $0 (Box 2) | | §121 MFJ | $100K | $300K | — | — | $0 (Box 2) |

$700K Primary Residence | Scenario | Basis | Gain | 10.75%×Gain | 2%×Price | Withholding | |----------|-------|------|-------------|----------|-----------| | Low gain | $600K | $100K | $10,750 | $14,000 | $14,000 (floor) | | Moderate | $400K | $300K | $32,250 | $14,000 | $32,250 | | §121 MFJ | $400K | $300K | — | — | $0 (Box 2) | | Exceeds §121 | $100K | $600K | $10,750* | $14,000 | $14,000 | *Box 2 unavailable. Withholding on full gain. Claim §121 on NJ-1040-NR.

$1.2M Primary Residence | Scenario | Basis | Gain | 10.75%×Gain | 2%×Price | Withholding | |----------|-------|------|-------------|----------|-----------| | Low gain | $1.05M | $150K | $16,125 | $24,000 | $24,000 (floor) | | §121 MFJ | $800K | $400K | — | — | $0 (Box 2) | | Exceeds MFJ | $400K | $800K | $32,250* | $24,000 | $32,250 | | Investment | $600K | $600K | $64,500 | $24,000 | $64,500 |

The 2025 Mansion Tax Multiplier

For sales over $1 million, sellers now face both the GIT/REP withholding AND the restructured mansion tax (S5000, effective July 10, 2025) — which shifted from buyer to seller with graduated rates up to 3.5%. | Sale Price | Mansion Tax Rate | Mansion Tax | Min. GIT/REP (2%) | Combined Minimum | |-----------|-----------------|-------------|-------------------|-----------------| | $1.2M | 1.0% | $12,000 | $24,000 | $36,000 | | $2.2M | 2.0% | $44,000 | $44,000 | $88,000 | | $3.0M | 2.5% | $75,000 | $60,000 | $135,000 | | $5.0M | 3.5% | $175,000 | $100,000 | $275,000 |

The mansion tax is permanent and non-refundable — unlike the GIT/REP withholding. Full schedule: 1% ($1M–$2M), 2% ($2M–$2.5M), 2.5% ($2.5M–$3M), 3% ($3M–$3.5M), 3.5% (over $3.5M). For a $3M sale, the combined state seizure at closing ($135,000) exceeds what many sellers budget for their moving costs.

How Do I Get a Refund of My NJ Exit Tax Withholding?

File Form A-3128 shortly after closing for faster processing, or claim the credit on your NJ-1040-NR on the Estimated Payment/Credit line. Electronic returns: 4+ weeks. Paper: 12+ weeks.

A-3128 requires the current version (8-24 or later — older versions rejected outright). Attach the final Settlement Statement (HUD-1 or Closing Disclosure) proving the transaction figures, plus a copy of GIT/REP-1 or sealed GIT/REP-2. Can only be filed after the deed is recorded. Mail to: NJ Division of Taxation, Taxpayer Accounting Branch, PO Box 046, Trenton, NJ 08646-0046. Filing A-3128 does NOT replace the requirement to file an annual NJ return and does not close the tax year.

On NJ-1040-NR: report gain as "Net Gains or Income From Disposition of Property." Report GIT/REP-1 payment on the Estimated Payment/Credit line — NOT the "NJ Income Tax Withholdings" line. Attach copies of GIT/REP-1 or sealed GIT/REP-2. Check refund status at nj.gov or (609) 826-4400.

Late-year sale tip: For sales closing in November or December, filing an electronic NJ-1040-NR in January is generally more efficient than the paper-based A-3128 process. The state must first receive, process, and clear the paper check mailed from the county before it can even acknowledge the A-3128 claim.

Refund offset warning: NJ-1040NR instructions warn that your refund can be applied to debts owed to NJ agencies, the IRS, or other jurisdictions with set-off agreements. You’ll be notified by mail if your refund is applied to an existing debt.

Why overpayment is virtually guaranteed: Withholding uses 10.75% flat, but actual tax uses graduated rates. A nonresident with only $200,000 NJ gain owes ~$10,268 actual tax but withholds $21,500 — overpayment of ~$11,200. Even a $100,000 gain: actual tax ~$4,544 vs. withholding $10,750 — refund over $6,000.

The Withholding as an Estimated Payment Shield

The GIT/REP prepayment is legally classified as an estimated tax payment on your NJ account. If you have other NJ-source income during the year and have fallen behind on quarterly NJ-1040-ES payments, the large GIT/REP withholding is aggregated with all other NJ estimated payments. A large real estate withholding can effectively satisfy safe harbor requirements for your broader NJ tax profile, potentially eliminating underpayment penalties. Learn more about NJ estimated tax payments.

What Are the Most Common NJ Exit Tax Misconceptions That Trip Up Sellers?

"It’s a separate exit tax." No. It’s an estimated GIT prepayment identical to a quarterly NJ-1040-ES installment.

"It’s a double tax." The withholding is a prepayment of the same capital gains tax you’d owe on your NJ return. Any overage is fully refundable.

"Everyone pays 2%." The 2% is the floor. 10.75% of gain can far exceed 2% of price.

"Primary residence sellers always owe." Entire gain excludable under §121? Box 2. Zero at closing.

"Only applies when leaving NJ." Any nonresident selling NJ property. A Florida resident with a NJ beach house is equally subject.

"The rate is 8.97%." Changed to 10.75% in 2018. Using 8.97% blocks deed recording.

"Entities must pay." Corps, partnerships, LLCs, S-corps: GIT/REP-3 Box 5. Exempt.

"You can’t get the money back." Fully creditable. Refunds routine via A-3128 or NJ-1040-NR.

"Seniors are automatically exempt." There is no age-based exemption for the real estate withholding. Seniors are subject to the same calculations as all other taxpayers, though they frequently qualify for the §121 principal residence exclusion.

"I can avoid it by listing a temporary NJ address." Providing fraudulent residency certifications on GIT/REP forms constitutes tax fraud and carries severe penalties.

2025–2026 Updates

No changes to withholding formula, rates, or process. TB-57(R) revised September 30, 2025 (e-signatures, DV provisions, partial 1031 procedures). GIT/REP-3 and 4 updated to version "8-25," required for forms signed on or after October 1, 2025.

FY2026 mansion tax overhaul (effective July 10, 2025): restructured supplemental realty transfer fee. Tiered rates on sales over $1M: 1% ($1M–$2M), 1.5% ($2M–$3M), 2% ($3M–$5M), 2.5% ($5M–$7.5M), 3% ($7.5M–$10M), 3.5% (over $10M). Shifted from buyer to seller. Separate from GIT/REP.

Flat tax proposal S3311 (5.9% rate, introduced February 5, 2026): referred to Senate Budget Committee, no realistic prospect of passage.

Don’t Confuse the Exit Tax with Stay NJ

The "Stay NJ" program (distributing benefits starting early 2026) is a completely separate property tax relief initiative for senior citizens aged 65+ earning under $500,000, providing up to 50% reimbursement on local property tax bills capped at $6,500/year. Stay NJ is designed to retain residents; the exit tax withholding targets residents who are leaving. They do not interact, and receiving Stay NJ benefits does not exempt anyone from the GIT/REP protocol.

Related reading: NJ Capital Gains Tax Rates | NJ Estimated Tax Payments | NJ Inheritance Tax | NJ Real Estate Investor Tax Guide | Tax services

Frequently Asked Questions