New Jersey Exit Tax Explained: Capital Gains, Exemptions, and How to Legally Avoid It in 2025

Selling your home in New Jersey and moving out of state? Then you've probably heard about the New Jersey exit tax — and you might be wondering what it really means. In this comprehensive guide, GTA Accounting Group explains the NJ exit tax, how it affects capital gains tax in NJ, what exemptions may apply, and how you may be able to legally avoid paying the NJ exit tax in 2025.

What Is the NJ Exit Tax?

The term "NJ exit tax" refers to a tax withholding imposed on the sale of real estate by non-residents of New Jersey. Contrary to popular belief, there is no separate “exit tax” law — rather, it’s a withholding of estimated New Jersey capital gains tax when you sell property and leave the state.

So, what is the exit tax in New Jersey? Simply put, when a property is sold by someone moving out of New Jersey, the state requires the seller to prepay taxes on any capital gains that may result from the sale.

Does New Jersey Have an Exit Tax?

Yes, but not as a unique tax category. The exit tax in NJ is essentially a prepayment of potential income tax owed from the sale of real estate. It’s not an additional tax; rather, it's designed to ensure New Jersey collects its share of taxes from individuals who are moving out of the state after selling property.

Who Is Subject to the Exit Tax in NJ?

If you're a non-resident of New Jersey at the time of sale — or plan to move out of state immediately after selling — you’re subject to the NJ real estate exit tax. This applies whether it’s your primary residence, rental property, or vacation home.

However, if you're staying in NJ or if the sale qualifies for exemptions, the NJ exit tax exemption may apply.

NJ Exit Tax Rate: How Much Will You Pay?

The NJ exit tax rate is based on the estimated capital gains or 2% of the total consideration of the property (whichever is higher). Here's how it's calculated:

• Option 1: Estimated gain from the sale × your NJ income tax rate
  
  
• Option 2: 2% of the total sales price
  
  

You must pay the greater amount of these two.

Example:

• Sale price = $500,000
  
  
• Estimated gain = $100,000
  
  
• NJ income tax on $100,000 gain = $6,575
  
  
• 2% of $500,000 = $10,000
  
  

You’ll owe $10,000 at closing under the exit tax rule.

Use a NJ exit tax calculator or consult with a CPA firm in NJ like GTA Accounting Group for accurate numbers.

Capital Gains Tax in NJ: The Core of Exit Tax

The NJ capital gains tax on real estate is the underlying tax being prepaid through the exit tax. This is not a separate tax — it’s a part of your New Jersey state income tax.

The New Jersey capital gains tax rate follows the state’s income tax brackets, which go up to 10.75% for high earners.

If you’re selling a primary residence, you may qualify for a federal capital gains exclusion of:

• $250,000 for individuals
  
  
• $500,000 for married couples filing jointly
  
  

However, New Jersey has no capital gains exclusion, so gains are taxed like ordinary income.

New Jersey Exit Tax for Seniors

There’s no automatic New Jersey exit tax exemption for seniors, but you may qualify for relief if:

• The property is your primary residence
  
  
• You meet IRS guidelines for capital gains exclusion
  
  
• You are not leaving the state (or not yet considered a non-resident)
  
  

GTA Accounting Group’s advisory services in NJ can help you assess whether you qualify for any NJ exit tax exemptions, including senior exemptions and partial income exclusions.

NJ Exit Tax Exemptions: Who Qualifies?

There are a few situations where you may not owe the exit tax in NJ, including:

• Seller is still a NJ resident
  
  
• No gain is realized on the sale
  
  
• The sale is of a primary residence and the federal capital gains exclusion applies
  
  

To apply for NJ exit tax exemption, you must file Form GIT/REP-3 (Seller's Residency Certification/Exemption) and provide documentation supporting your claim.

How to Avoid Paying NJ Exit Tax Legally

Looking to minimize or avoid the exit tax in New Jersey? Here are a few legal strategies:

1. Stay a Resident Until After Sale
   If you remain a New Jersey resident during and after the sale, you can file as a resident and avoid the exit tax withholding.
   
   
2. Reduce Capital Gains
   Improve your cost basis by including renovation expenses, closing costs, and real estate agent fees — this reduces the taxable gain.
   
   
3. Claim the Federal Capital Gains Exclusion
   If the property is your primary residence for at least two of the past five years, you may qualify to exclude up to $250,000/$500,000 of gains.
   
   
4. Use the Correct NJ GIT/REP Form
   File GIT/REP-3 or GIT/REP-4 to apply for exemptions or reduced withholding based on no gain or primary residence exclusion.
   
   
5. Consult a Tax Professional
   Every sale is unique. The best way to avoid NJ exit tax errors is to work with a reliable CPA firm in NJ like GTA Accounting Group.
   
   

What Taxes Do You Pay When You Sell a House in NJ?

Besides the NJ exit tax, sellers may owe:

• New Jersey capital gains tax
  
  
• Federal capital gains tax
  
  
• Realty transfer fee
  
  
• Local municipal fees
  
  
• Title insurance & attorney costs
  
  

Being aware of all costs helps you calculate your true net proceeds.

NJ Capital Gains Tax on Sale of Home: Long-Term vs. Short-Term

While the IRS distinguishes between long-term and short-term capital gains, New Jersey does not. All gains are taxed as ordinary income, regardless of how long you’ve owned the property.

So, whether it's long-term capital gains tax NJ or short-term, you're taxed at your state income tax rate.

Leaving NJ Tax: What to Know Before Moving

If you're relocating out of New Jersey, understand the exit tax in NJ and plan ahead:

• Document your primary residence status
  
  
• Review your capital gains exposure
  
  
• File all required forms correctly
  
  
• Use a tax advisor to avoid unexpected penalties or delays
  
  

Why Choose GTA Accounting Group?

At GTA Accounting Group, we specialize in:

• Accounting services in NJ
  
  
• Advisory services for real estate and capital gains
  
  
• Filing exemptions and state forms
  
  
• Guiding you through the NJ exit tax process
  
  

Whether you're selling your primary home or investment property, our CPA firm in NJ can help you reduce your tax liability and ensure compliance with all New Jersey tax laws.

Final Thoughts: Is There an Exit Tax in NJ? Yes — But It’s Manageable

The exit tax in New Jersey often catches sellers off guard — but with the right planning and support, it doesn’t have to. Understanding the New Jersey exit tax, knowing your capital gains tax responsibilities, and seeking professional guidance can save you thousands.

Before you sell, contact GTA Accounting Group for expert advice tailored to your situation.

Need help calculating your NJ exit tax or capital gains tax?
📞 Call GTA Accounting Group today — your trusted CPA firm in NJ for real estate and tax advisory.