New Jersey Non-Resident Tax Withholding
When selling Real Estate in the New Jersey, the State is constantly looking to get its share of any profits. Whether it be the Realty Transfer Fee or the “Masion Tax,” the State always has it’s hand out. Another instance is when a “Non-Resident” is selling a piece of property.
If a seller is considered a “Non-Resident,” the settlement agent is required to withhold at least 2% of the consideration, i.e., purchase price for most residential transactions, received for the sale. In addition, the “Non-Resident” Seller’s Tax Declaration form is required to be recorded with the Deed. So, the key question is, “How can you avoid this if you live out of State?”
Well, if you are truly an “Non-Resident,” as in, you do not live in New Jersey now, nor have you lived in New Jersey in the past 5 years, then you will be stuck with the estimated tax withholding at closing. But there are some exceptions for all the others who may no longer live in New Jersey at the time of the sale.
Exception #1
The property you are selling is your principal residence. So, if you are selling your house and moving out of New Jersey, and the house you are selling was your principal residency, you can then avoid the estimated tax withholding by completing the Seller’s Residency Certification (GIT/REP-3) and checking box number 2.
Now, some may ask, what if the house used to be a principal residence, but you had moved prior to selling the house? In this instance, so long as you lived in the house as your principal residence for at least 2 out of the previous 5 years, you can still consider it a principal residence, and can still use the Seller’s Residency Certificate (GIT/REP-3) and check box number 2.
Exception #2
If you live in New Jersey for at least half of the year, then you could be considered a New Jersey resident taxpayer, as you would be filing a resident tax return in New Jersey. In this instance, you can then avoid the estimated tax withholding by completing the Seller’s Residency Certification (GIT/REP-3) and checking box number 1.
Exception #3
If you are not an individual, estate or trust, then you are not required to have the estimated tax withholding at closing. So, LLCs, corporations, etc., are excepted and can avoid the estimated tax withholding by completing the Seller’s Residency Certification (GIT/REP-3) and checking box number 5.
Exception #4
If you sell the property for less than $1,000.00, you would be exempt. In this instance, box 6 would be checked on the GIT/REP-3.
Exception #5
An Estate that is transferring property to an heir pursuant to a Will or the intestate laws of the State of New Jersey, is also exempt and would check box 8.
Exception #6
One of the least remembered exceptions is the one for a military member of the U.S. Armed Forces. If the seller is a member of the U.S. Armed Forces and was a resident of the State of New Jersey at the time they bought the house and is now selling the house as a result of being deployed on active duty outside of New Jersey, then they would be excepted from the 2% withholding at closing. Box 16 would be the applicable box to check on the GIT/REP-3.
Conclusion
These are but a few of the exceptions to the Non-Resident tax withholding. As always, you should always consult with an attorney and, in this instance, a tax professional, to ensure you meet the qualifications for utilizing the New Jersey Seller’s Residency Certification/Exemption Form (GIT/REP-3). The information above is based on the current GIT/REP-3 (dated 2-21) as of the publishing of this material.
Disclaimer: The information contained here is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.