Header Right

NJ Income Taxes

Hit by the NJ Exit Tax on Sale of Real Estate? You Can Recoup Your Money

by

The New Jersey “Exit Tax”, which became law in 2007, requires the real estate seller to file a GIT/REP form

Exiting NJ?

(Gross Income Tax form) in order to record a Deed for  the transfer of his property.

When a non-resident sells property, New Jersey will withhold this income tax in the amount of either 8.97 percent of the profit or 2 percent of the total selling price, whichever is higher. Therefore, even if the property is sold at a loss, tax must be withheld to fulfill the two percent requirement.

What Can I do?

It’s important to realize that while the Exit Tax requires a substantial withholding, it doesn’t have any impact on the actual tax liability. If the seller files a NJ tax return he is refunded the difference between what was withheld and what is owed. This recovery can be very significant when one factors in the selling costs and original purchase price, both of which reduce the taxable gain.

Estates Should Pay Special Attention

The recovery is often even greater in the case of real estate sold by an estate, as there is a step up in cost basis which would typically minimize a gain on the sale, often resulting in full recovery of the entire withholding. To quickly expedite the recovery of the excess withholding, it would be prudent to timely file Form NJ1040 NR (individual) or NJ1041 (estate/fiduciary).

How do I know if I am considered a “non-resident”?

So who’s considered a “resident” and who’s a “non-resident” with regard to this tax? The law defines a resident taxpayer as one of the following:

  • An individual who is and intends to continue to maintain a permanent place of abode (home, residence) in New Jersey on/after the day of transfer
  • An estate established under the laws of New Jersey
  • A trust established under the laws of New Jersey

A nonresident is simply defined as “any taxpayer that does not meet the definition of resident taxpayer.”

Resolve Your NJ Tax Debt, No Penalties!

by

Businesses and individuals facing unpaid New Jersey tax liabilities may be able to get a break on penalties—although not on interest—according to a recent NJ Division of Taxation announcement. But you have to act quickly. From now until November 17, businesses and individuals with liabilities from tax periods 2005 through 2013 may be able to enter into a “closing agreement” with the Division.

And why should I do this now? Because under this limited-time offer (remember, the clock runs out on November 17) the Division of Taxation will accept—in full and final satisfaction of the outstanding tax liability—an amount that reflects reduced or eliminated penalties, with no charge for collection or recovery fees. Better yet, the tax liability will not be subject to further audit.

Not so good: no refund can be claimed by the taxpayer on this matter. You win some, you lose some.

Here are some more details

• Most penalties can be reduced to zero. But an Amnesty Penalty on taxes due on or after 1/1/2002 and before 2/1/2009 will still apply.

• Interest will not be waived, but it will only be calculated on the tax and reduced penalties (and the penalties may drop to zero, anyway).

• Recovery Fees—a 10% fee on each tax liability that was previously forwarded to the Division’s authorized collection agency—may be waived.

• Also, costs of collection may be eliminated. Normally, if the Division has to collect a tax debt by filing a Certificate of Debt (judgment,) a 10% fee is applied to cover legal and collection costs.

Is there a hitch? Sort of. If you don’t pay the balance due by November 17, 2014 or provide sufficient proof that you or your businesses do not owe it, then any and all penalties, interest, costs of collection, and/or recovery fees will remain due. The state may also pursue further collection activity. You may pay the balance due in one lump sum or you may make several payments to satisfy the amount due. But the full amount must be paid by November 17, 2014 in order to take advantage of the reduced penalties, and eliminated costs of collection, and recovery fees.

For assistance please contact our Tax Manager, Steven Citron. You may also visit the NJ Division of Taxation website for more information at Resolve Your Tax Debt – Fall 2014

Click Here

 

NJ Issues Technical Bulletin on Sales and Use Tax for Attorneys

by

On January 15, 2013, the NJ Division of Taxation issued a technical bulletin on the taxability of purchases made by lawyers and law firms.  Lawyers who practice in New Jersey are not liable for collecting sales tax on charges for professional services performed by their practice. They are, however, required to pay sales or use tax on all purchases of taxable tangible property, specified digital products, and certain services used by their firm, unless otherwise exempted by law. Purchases subject to sales and use tax that are common to law firms include: [Read more…] about NJ Issues Technical Bulletin on Sales and Use Tax for Attorneys

Selling Investment Real Estate in New Jersey? Beware of the “Exit Tax”

by

If you’re a non-resident selling investment real estate in New Jersey, there’s a unique NJ withholding tax you should be aware of. Both residents and non-residents always had to pay income tax on the gain upon the sale of real estate. This tax is required to be withheld for non-residents.  The “Exit Tax”, which came into law six years ago, requires the seller to file a GIT/REP form (Gross Income Tax form) in order to record a Deed for the transfer of his property. When a non-resident sells the property, New Jersey will withhold this income tax in the amount of either 8.97 percent of the profit or 2 percent of the total selling price, whichever is higher. Therefore, even if the property is sold at a loss, tax must be withheld to fulfill the two percent requirement. When such a seller eventually files his NJ tax return he is refunded the difference between what was withheld and what was owed. [Read more…] about Selling Investment Real Estate in New Jersey? Beware of the “Exit Tax”

Cancellation of Debt Income- Adding Insult to Injury

by

Your rental property went down in value so much that it was worth less than your $500,000 mortgage, so you walked away from the property. Let the bank enjoy it!

You pat yourself on the back for your clever move until the following January. January is 1099 time and you get a 1099-C from the bank stating you have $500,000 of cancellation of debt (COD) income

Your cronies at the club tell you that you have to pay US and NJ income tax on the $500,000 at ordinary income tax rates, not the favorable capital gains rates. You calculate that your brilliant move will cost you $200,000.

HELP! [Read more…] about Cancellation of Debt Income- Adding Insult to Injury