“Exit Tax” I’m sure we’ve all heard of it. The state of New Jersey will tax you for simply moving out into another state, right? You will be charged 8.97% of the profit or 2% of the sale price, whichever one is higher. Outrageous right? Well that’s because it’s not exactly what everyone thinks it is.

What is The New Jersey Exit Tax? 

The legislation was originally passed by former Governor Jim McGreevy, with intention that no one moving out of New Jersey would skip out on being taxed for their sale’s profit. When it comes time to sell your home in the state of New Jersey, you are required to pay a standard tax rate on the profit of that sale. New Jersey requires you to pay that tax upon moving out rather than how you would typically file your state income tax return. Due to this timing, many associated it with a tax that is added when “exiting” the state. It is not an additional tax as most assume for it to be.

How Does This Work?

New Jersey will take either 8.97% of the profit or 2% of the sale price, whichever is higher. Then, when it comes time to file New Jersey tax return that tax gets re-evaluated to the correct sale’s profit tax amount. Therefore, the state takes the “exit tax”, in order to ensure that the profit gain is paid before you can run out of the state. This money is then temporarily held in escrow.

Would you have to pay this so called exit tax, even if you didn’t make a profit? Yes, in this case you would be required to pay the 2% of the sale price. However, you would get that money refunded when you file your New Jersey state income tax.

In reality the New Jersey Exit tax is simply a prepay, to make sure that you don’t evade the state income tax.