Every fall, we meet homeowners ready for a move out of state, whether to be near grandchildren or to escape the winter. If that's you, there is one piece of New Jersey closing paperwork worth understanding early. It is often called the "exit tax," but the official name is less dramatic: the GIT/REP forms and the estimated Gross Income Tax payment some sellers make at closing.
This is a general overview, not tax advice. Your accountant and real estate attorney should guide your own situation.
What the GIT/REP Forms Are
According to the New Jersey Division of Taxation, a GIT/REP form is a Gross Income Tax form that must be recorded with the deed whenever real property in New Jersey is sold or transferred. The requirement comes from N.J.S.A. 54A:8-9 and has been in effect since August 1, 2004. The county clerk will not record the deed without the appropriate form.
The point of the form is to show whether the seller needs to prepay estimated income tax on the sale. It is filed at closing alongside the realty transfer fee paperwork, which is a separate requirement.
Residents vs. Nonresidents
Which form you sign depends on your residency status on the day of the transfer:
- New Jersey residents generally complete the GIT/REP-3, the Seller's Residency Certification/Exemption, and no estimated payment is required.
- Nonresidents generally complete the GIT/REP-1 at closing (or the GIT/REP-2 if they prepay before closing) and make an estimated tax payment, unless one of the exemptions on the GIT/REP-3 applies.
Here is the detail that surprises people. The Division defines a resident as someone who is, and intends to continue to maintain, a permanent home in New Jersey on or after the day of the transfer, and it treats part-year residents as nonresidents. The GIT/REP-1 instructions add that a seller is considered a nonresident unless a new residence has been established in New Jersey. In plain terms, if you sell your New Jersey home and move out of state without keeping a home here, expect to be treated as a nonresident for this purpose.
How the Estimated Payment Works
For nonresident sellers, the Division explains that the estimated payment equals the gain on the sale multiplied by the highest Gross Income Tax rate (currently 10.75%), but it can't be less than 2% of the total consideration stated in the deed. The 2% is a minimum, not a cap, and it applies even when there is no gain.
The payment is collected at closing by the settlement agent and submitted with the GIT/REP-1 and the deed to the county clerk, who forwards it to the state. It is an estimate, not a final bill. The actual tax is calculated when you file your New Jersey nonresident return, and the Division notes that a refund can be requested if you overpaid.
Common Exemptions
The GIT/REP-3 lists a number of seller's assurances that can exempt a nonresident from the payment. One of the most relevant for homeowners: according to the Division, a seller who moves out of state may qualify if the home was used exclusively as a principal residence within the meaning of Section 121 of the Internal Revenue Code and the entire gain can be excluded. If only part of the gain can be excluded, the exemption doesn't apply. Other assurances cover situations such as a sale with no net proceeds to the seller. Your attorney will confirm which, if any, fits.
Practical Steps if You're Moving Out of State
- Talk to your accountant early, ideally before you list, about your residency status, your expected gain, and whether an exemption may apply.
- Know where you'll live. Staying in New Jersey, perhaps by downsizing locally, generally keeps you a resident; moving away generally does not.
- Tell your attorney about your plans as soon as you're under contract, so the right form is ready for closing.
- Keep records of your purchase price and capital improvements. They help your accountant determine your gain.
- Budget for the possibility of an estimated payment being taken from your proceeds, even if part of it comes back later.
The Takeaway
The GIT/REP forms are routine paperwork for every New Jersey sale, but for sellers moving out of state they can affect how much cash you take home at closing. A short conversation with your accountant and attorney early in the process prevents surprises.
Planning a move out of New Jersey? Call Fahey Realtors at 908.204.0600 or visit us at 61 Claremont Road in Bernardsville, NJ 07924. We will help you plan the sale and coordinate with your attorney and accountant.
