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Disclaimer: Estimates are meant to be illustrative and used for reference purposes only. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided. No legal, tax, financial or accounting advice provided.

New Jersey’s so-called “exit tax” isn’t a new tax—it’s a withholding at closing meant to prepay New Jersey Gross Income Tax when a nonresident sells NJ real estate. At closing, the settlement agent must attach the proper GIT/REP form to the deed and, for nonresidents who don’t qualify for an exemption, collect estimated tax. You reconcile the actual liability (or refund) on your NJ nonresident return.

Withholding applies to nonresident sellers (including estates and trusts) of NJ property unless they qualify for an exemption; residents certify on GIT/REP-3 and no withholding is taken. Note that part-year residents are treated as nonresidents for this purpose. Corporations and certain business trusts aren’t subject to the Gross Income Tax and use GIT/REP-3 to claim that status.

For nonresidents, New Jersey requires the greater of (1) 10.75% × your taxable gain (after any §121 exclusion) or (2) 2% of the gross sale price (“consideration”). Those rules are embedded in the GIT/REP closing forms and instructions used by settlement agents.

Your adjusted basis generally equals what you paid for the property + capital improvements and certain acquisition/settlement costs (e.g., title, recording, legal) − depreciation and other required reductions. Routine repairs and financing charges (like loan origination points) don’t increase basis. These are federal rules NJ follows for computing gain.

Start with net proceeds (sale price − seller’s closing costs), then subtract your adjusted basis; the result is your gain for tax purposes. That gain—after any applicable §121 exclusion—is what New Jersey uses for the 10.75% comparison at closing. You finalize the number on your tax return.

If you meet IRS §121 rules, you can exclude up to $250,000 of gain ($500,000 if married filing jointly) on the sale of your principal residence. New Jersey recognizes this for withholding: if your entire gain is excludable, you can claim GIT/REP-3 and no withholding is due at closing.

If any taxable gain remains after §121, the exemption doesn’t apply, and closing must withhold the greater of 10.75% of that taxable remainder or 2% of the sale price. In practice, the 2% floor often exceeds 10.75% of a small leftover gain; you reconcile and can claim a refund when you file your NJ nonresident return (or request an earlier refund via Form A-3128).

Exemptions are listed on GIT/REP-3 (“Seller’s Assurances”). Common ones include: NJ residency; principal residence with gain excluded under §121; certain foreclosure/transfer-in-lieu transactions; transfers to or by government/mortgage agencies; sellers that are not subject to NJ Gross Income Tax (e.g., corporations/business trusts); consideration ≤ $1,000; qualifying §721/§1031/§1033 transactions; estate distributions to heirs; certain short sales with no net proceeds; inter-spousal/divorce transfers; cemetery plots; qualifying relocation company deals; and a limited active-duty military provision. Check the boxes/instructions on the current form to document eligibility.