How to Avoid Paying NJ Exit Tax: GIT/REP-3 Exemptions and Waivers

The most reliable way to avoid the NJ exit tax is to show at closing that you don’t owe it: New Jersey residents certify residency on Form GIT/REP-3 and pay nothing at the table, and nonresidents can check one of the exemption boxes on the same form when a qualifying situation applies, most often the principal residence exclusion or a Section 1031 like-kind exchange.¹ If no exemption fits, you can ask the Division of Taxation for a waiver, or reduce the payment by documenting a higher cost basis and recover any overage after closing.

First, Confirm Whether You Actually Owe It

The estimated payment applies only to nonresident individuals, estates, and trusts. If New Jersey is your domicile at the time of sale, or you kept a permanent place to live in the state and spent more than 183 days there during the tax year, you’re a resident.² Residents file the GIT/REP-3, check Box 1, and the deed records without any withholding. Income tax on the gain is settled later with your annual return.³

The trap: if you moved out of New Jersey before selling, you’re a nonresident at the time of sale even if you lived in the state for decades. Timing the closing before your move, when it’s feasible, keeps you on the resident side of the line.

Entity-owned property sits outside the rule. Corporations and LLCs are not subject to the individual estimated payment; the seller checks Box 5 on the GIT/REP-3 and nothing is withheld.¹ Every seller still needs some version of the GIT/REP form on file, because the county clerk will refuse to record a deed without one.⁴

Claim an Exemption on the GIT/REP-3

Nonresidents who qualify for one of the “Seller’s Assurances” on the GIT/REP-3 avoid the payment entirely. You check the box that fits, file the form with the deed, and no money changes hands for the estimated tax.¹ The form lists more than a dozen categories. A few carry most of the residential cases.

Principal Residence Exclusion

Box 2 mirrors the federal capital gains exclusion under IRC Section 121. You qualify if you owned and used the property as your principal residence for at least two of the five years before the sale.⁵ If your gain falls entirely within the federal exclusion ($250,000 single, $500,000 joint), you owe nothing at closing. If the gain runs past the exclusion, the exemption still covers the excluded portion; you can make an estimated payment on the taxable excess with Form NJ-1040-ES after recording instead of filing a GIT/REP-1 at closing.¹ You must actually claim the federal exclusion on your federal return for the state exclusion to hold.

Section 1031 Like-Kind Exchange

Box 7 covers a qualifying like-kind exchange. Check the box, circle IRC Section 1031, and show the value of the replacement property. When the whole transaction qualifies and you receive only replacement property (no cash or other non-like-kind assets), no estimated payment is due. If you also receive cash or other non-like-kind property (“boot”), that portion is taxable; you can file a GIT/REP-1 at closing and pay 2% of the non-exempt amount, or pay later with Form NJ-1040-ES. An exchange that fails to qualify puts you back on the hook for the full gain on a nonresident return.¹

Other Boxes That Wipe Out the Payment

Several common scenarios have their own boxes on the same form:¹

Short sale initiated by the mortgagee where you receive no proceeds (Box 9).
Conveyance to a mortgagee in foreclosure or in lieu of foreclosure with no additional consideration (Box 3).
Transfers between spouses or incident to divorce under IRC Section 1041 (Box 12).
Executor or administrator distributing property to an heir or devisee under a will or intestacy (Box 8).
Total consideration of $1,000 or less (Box 6).
Settlement sheet showing no net proceeds to the seller (Box 14).

Ask for a Waiver When No Box Fits

If none of the assurances apply but you still shouldn’t be paying, request a GIT/REP-4 waiver from the Division of Taxation. Unlike the self-certified GIT/REP-3, the GIT/REP-4 needs Division approval before the county clerk will accept it.

The Division grants waivers for situations that fall outside the check-boxes: a sale that produced a capital loss, a court-ordered transfer in a divorce where one spouse refuses to sign the GIT/REP-3, a bankruptcy trustee liquidating property, an unrecorded deed from years ago where the seller can’t be located, and cases of demonstrated undue hardship.³

To request one, submit the partially completed GIT/REP-4, the original deed, the settlement sheet, the proposed deed, and a cover letter explaining why the waiver is justified. Send the package to the Office of Taxpayer Communications, or contact the GIT/REP Unit at 609-322-9275 or Taxation.GITREP@treasury.nj.gov.³ Approval takes time. Start well before closing if you think you’ll need one.

Shrink the Payment With a Documented Basis

When no exemption or waiver applies, you’ll make the estimated payment, but the amount depends on your recognized gain. The withholding equals your gain multiplied by 10.75%, with a floor of 2% of the total sale price.⁶ The 2% is a minimum, not a cap, and you can’t elect the lower figure.³ The lever you control is the gain calculation.

A worked example. Sell a property for $800,000 that you bought for $300,000. The gain is $500,000, and 10.75% of that is $53,750. The 2% floor would be $16,000, so you’d owe $53,750 at closing. Document $200,000 in capital improvements and the gain drops to $300,000, cutting the payment to $32,250.

Your adjusted basis starts with the original purchase price and adds acquisition costs (title insurance, recording fees, transfer taxes you paid as buyer) plus the cost of capital improvements. Capital improvements add value to the property, extend its useful life, or adapt it to a new use; routine maintenance and repairs don’t count. Adding a room, bathroom, deck, or garage; installing a new roof, central air, heating system, or security system; modernizing a kitchen; adding a pool, fence, or driveway; and replacing flooring or windows throughout the home all qualify. Repair-type work can count when it’s part of an extensive remodeling or restoration.⁷ Fixing a leaky faucet, repainting a room, or patching drywall doesn’t. Keep receipts, contractor invoices, and permits; the Division can audit your calculation, and undocumented improvements won’t survive.

Get It Back After Closing

The estimated payment is an estimate, not a final bill. If it exceeds your actual tax on the gain, you can recover the difference.

Nonresidents don’t have to wait for the annual return. File Form A-3128 with the Division of Taxation shortly after closing to request an early refund, and include proof of the overpayment such as your settlement statement or closing disclosure.⁸ This is the standard move when you paid the 2% minimum but your real gain (and real tax) is much smaller.

Whether or not you use Form A-3128, file a New Jersey return for the year of the sale. Nonresidents file Form NJ-1040NR and report the estimated payment on Line 46. Residents or part-year residents file Form NJ-1040, and a mid-year move may mean filing both a resident and nonresident return depending on when the sale occurred.⁹ You report the actual gain, claim credit for the estimated payment, and any excess comes back as a refund. The return is due April 15 of the year following the sale, with an automatic extension to October 15 if you’ve paid at least 80% of what you owe by April.¹⁰ Skip the return and you forfeit any refund you’re owed.

1
NJ.gov. GIT/REP-3 Seller’s Residency Certification/Exemption
2
New Jersey Department of the Treasury. GIT-6 Part-Year Residents
3
NJ Division of Taxation. FAQs on Gross Income Tax (GIT) Forms Required For Sale or Transfer of Real Property in New Jersey
4
NJ.gov. GIT/REP-2 Nonresident Seller’s Tax Prepayment Receipt
5
Cornell Law Institute. N.J. Admin. Code 18:35-2.4 – Election to Exclude up to $500,000 of Gain on Sale of Principal Residence
6
NJ.gov. GIT/REP-1 Nonresident Seller’s Tax Declaration
7
Internal Revenue Service. Publication 523 – Selling Your Home
8
New Jersey Division of Taxation. Buying or Selling a Home in New Jersey Tax Guide
9
NJ.gov. Common Filing Mistakes
10
NJ Division of Taxation. When to File and Pay