What Is the NJ Exit Tax? Who Pays, Withholding, and Refunds

The NJ exit tax isn’t a separate tax for leaving New Jersey. It’s an estimated income tax payment collected at closing when you sell real property in the state, equal to the greater of 8.97% of your gain on the sale or 2% of the total selling price.¹ You get it back, in whole or in part, when you file your New Jersey income tax return for the year of the sale and reconcile the prepayment against what you actually owe.

The formal name is the Estimated Gross Income Tax Payment on Sales of New Jersey Real Property by Nonresidents. New Jersey built it this way because once a seller moves out of state, chasing them for income tax owed on the gain becomes difficult. Collecting at the closing table, before the county clerk will record the deed, solves that problem.²

Who Actually Pays It

The withholding applies to nonresident individuals, estates, and trusts selling New Jersey real property.² You’re a nonresident for this purpose if New Jersey is not your domicile. Even if you spend time here, you’re not a resident unless you both keep a permanent home in the state and spend more than 183 days here during the year.³

The scenario that earned the “exit tax” nickname is a current New Jersey resident selling the house and moving away. Because you won’t be a resident at or shortly after closing, the state treats you as a part-year resident and requires the estimated payment at the table. You then file Form NJ-1040NR for the year of the sale, report income from both your resident and nonresident periods, and reconcile the withholding against your actual tax. Sellers in this situation often get a sizable refund, particularly if they qualify for the federal principal residence exclusion.

Current residents who are not moving out of state don’t pay the withholding at all. They certify their residency on Form GIT/REP-3 at closing and report any gain on their regular resident return.

How the Payment Is Calculated

The estimated payment is whichever of these two numbers is larger:¹

8.97% of the net gain (selling price minus your adjusted basis), or
2% of the total consideration (the full selling price, whether or not you had a gain).

Say a property sells for $500,000 and you have a $100,000 gain. The gain calculation gives $8,970. The sale-price calculation gives $10,000. You pay $10,000. The 2% floor tends to control the result whenever the gain is modest relative to the sale price, which is common for sellers who have owned the property only a few years, and it can even apply when you’ve sold at a loss.

Getting Your Adjusted Basis Right

Your adjusted basis starts with the original purchase price, including any mortgage used to finance the purchase, and grows with capital improvements made over the years. Improvements mean work that adds value or extends useful life, such as a new roof, a kitchen renovation, or an addition. Routine maintenance like painting or fixing a leaky faucet doesn’t count.⁴ A higher basis means a smaller gain, which can shrink your estimated payment or at least shrink what you ultimately owe. Keep the receipts.

For rental or investment property, New Jersey’s treatment of depreciation and expense deductions doesn’t always match federal rules. Your New Jersey adjusted basis can differ from your federal basis, which changes the gain reported on the state return.⁵

When You Can Skip the Withholding

Several situations exempt a seller from the withholding entirely. If any apply, you file Form GIT/REP-3 (Seller’s Residency Certification/Exemption) instead of GIT/REP-1, and no payment goes to the state at closing.⁶ The common ones:

You’re a current New Jersey resident and not moving out of state.
The property was your principal residence for at least two of the last five years and your gain fits within the federal exclusion of $250,000 for a single filer or $500,000 for a married couple filing jointly.⁷
The settlement sheet shows you’re receiving zero proceeds or owe money at closing (Box 14 on GIT/REP-3).
The transfer is a short sale where the mortgagee receives all the proceeds and the seller gets nothing (Box 9).⁸
The total consideration is $1,000 or less, which covers many quitclaim deed transfers between family members (Box 6).
Sheriff’s sales and bankruptcy trustee sales are the only transactions exempt from the GIT/REP form requirement altogether.⁶

A 1031 like-kind exchange also qualifies. If you’re rolling proceeds into a qualifying replacement property under Section 1031 of the Internal Revenue Code, check Box 7a on GIT/REP-3 and certify that the gain isn’t recognized for federal purposes.⁸ If part of the deal is “boot” (cash or other non-like-kind property), the exemption covers only the like-kind portion, and you either pay 2% on the taxable share at closing or submit an estimated payment with Form NJ-1040-ES after recording.

When no listed assurance fits but you still believe the withholding shouldn’t apply, Form GIT/REP-4 lets you request a waiver from the Division of Taxation. You submit the form by email with the deed, settlement statement, and a detailed explanation, and the Division must approve the waiver before the deed goes to the clerk.⁹ Build in time for review well ahead of your closing date.

Gift transfers between family members get no special exemption. A parent-to-child transfer is treated like any other transaction, with withholding depending on consideration and the transferor’s residency.⁶ If the stated consideration is $1,000 or less, the low-consideration exemption applies; otherwise, a nonresident transferor goes through the standard GIT/REP-1 process.

Paying at Closing

The settlement agent, usually the buyer’s attorney or title company, collects the payment from the seller and submits it with the GIT/REP-1 and the deed to the county clerk.² Payment is by check or money order made payable to the State of New Jersey – Division of Taxation. No county clerk will record a deed without the proper GIT/REP form and any required payment attached. If the seller paid the Division directly before closing, the Division issues a GIT/REP-2 stamped with its raised seal, which serves as the receipt the clerk needs to record the deed.⁶

How You Get the Money Back

Because the payment at closing is an estimate, many sellers overpay. There are two paths to a refund.

The standard route is to file Form NJ-1040NR for the year of the sale. Report the withholding on line 51 and attach a copy of your GIT/REP-1 or GIT/REP-2. If your actual New Jersey tax on the gain is less than what was withheld, the state refunds the difference.⁵ Electronic returns are typically processed in about four weeks; paper returns take at least twelve weeks.¹⁰

If the payment was made in error, say you qualified for a GIT/REP-3 exemption but didn’t claim it at closing, Form A-3128 (Claim for Refund of the Estimated Gross Income Tax Payment) goes directly to the Division of Taxation. Attach a copy of the GIT/REP-3 showing the exemption that applied, or documentation of the actual gain.¹¹ Incomplete forms get rejected, so review everything before mailing.

What Happens If the Payment Is Missed

Enforcement is built into the recording process itself. Without the GIT/REP form and payment, the deed doesn’t get recorded. If the payment is skipped or submitted short, the consequences add up fast. New Jersey charges interest on outstanding tax balances at the prime rate plus 3%, compounded annually; for 2026, that rate is 10.00%.¹² A late filing penalty of 5% of the tax due per month, up to 25%, can also apply, along with a separate 5% late payment penalty.¹³ These attach to the underlying income tax, not just the estimated payment, so filing your NJ-1040NR on time after the sale matters even when you already paid at closing.

1
NJ.gov. Buying or Selling a Home in New Jersey
2
NJ.gov. Estimated Gross Income Tax Payment Requirements on Sales of New Jersey Real Property by Nonresidents
3
New Jersey Division of Taxation. Part-Year Residents and Nonresidents
4
Internal Revenue Service. Property Basis, Sale of Home, Etc.
5
NJ.gov. 2025 Form NJ-1040NR Instructions
6
NJ Division of Taxation. FAQs on Gross Income Tax GIT Forms Required For Sale or Transfer of Real Property in New Jersey
7
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
8
NJ.gov. GIT/REP-3 Sellers Residency Certification/Exemption
9
NJ.gov. GIT/REP-4 Waiver of Sellers GIT/REP Filing Requirement
10
NJ.gov. Check Your Refund Status
11
NJ.gov. Form A-3128 Claim for Refund of the Estimated Gross Income Tax Payment for the Sale of New Jersey Real Estate
12
NJ.gov. Interest Rate Assessed on Tax Balances for 2026
13
NJ.gov. Penalties, Interest, and Collection Fees