The NJ "Exit Tax": What Happens at Closing When You Sell and Move Out of New Jersey

New Jersey doesn't have a separate "exit tax." What people call the exit tax is an estimated income tax payment a nonresident seller may have to make at closing: the gain times 10.75%, but not less than 2% of the sale price, unless an exemption applies. The exemption most downsizers look at is for a home used only as your principal residence, and any overpayment comes back when you file your New Jersey return.

I'm Dennis Mark Interdonato with The Dennis Mark Group. Some of the homeowners I help in Monmouth and Ocean County sell here and buy their next home in another state. If that's you, this is the closing-day item to understand before you set your dates, straight from the NJ Division of Taxation.

What is the New Jersey "exit tax"?

It's a prepayment, not a new tax. When you sell New Jersey real estate, the deed can't be recorded without a GIT/REP form, which the Division uses to decide whether a nonresident seller has to prepay estimated Gross Income Tax at closing (NJ Division of Taxation, GIT/REP FAQ). The Division explains why: a nonresident may have no other reason to file a New Jersey return, so the tax on the sale is estimated and paid up front, and any overpayment is refunded after you file (NJ Division of Taxation guide).

Who counts as a nonresident seller?

More people than you'd think. The Division says anyone who sold their New Jersey residence and moved outside the state during the tax year is considered a nonresident for purposes of reporting the sale. The GIT/REP-3 form adds that a seller is considered a nonresident unless a new residence has been established in New Jersey and listed on the form, and that part-year residents are considered nonresidents (Form GIT/REP-3).

If you're downsizing within New Jersey, you sign the GIT/REP-3 as a resident, make no estimated payment at closing, and report any gain on your regular New Jersey return.

How is the payment calculated?

Under N.J.S.A. 54A:8-9, the gain on the sale is multiplied by the highest Gross Income Tax rate, 10.75%. The payment can't be less than 2% of the total consideration in the deed, and the 2% is a floor, not a cap. Consideration includes any mortgage being paid off as part of the sale (GIT/REP FAQ).

Here's a made-up example of how the floor works. Say no exemption applies, the sale price is $600,000 and the gain is $40,000. The formula gives $4,300, but 2% of $600,000 is $12,000, so $12,000 is paid at closing. The difference comes back when the seller files the nonresident return.

Is a principal residence exempt?

It can be. Box 2 of the GIT/REP-3 covers property used exclusively as a principal residence as defined in Section 121 of the Internal Revenue Code, the federal home sale exclusion. The Division's FAQ says a seller who moves out of New Jersey on or after the day of the sale can qualify if the home was used exclusively as a principal residence and every requirement in IRS Publication 523 is met. Those include owning and living in the home for at least 2 of the 5 years before the sale (IRS Publication 523).

There's a wrinkle when the gain is bigger than the exclusion, and the Division's two documents put it differently:

• The FAQ says that if the entire gain can't be excluded, the seller doesn't qualify for the exemption.
• The current GIT/REP-3 instructions (revised 8-25) say a seller claiming Box 2 who determines the gain will be more than the exclusion may make an estimated payment on Form NJ-1040-ES after the deed is recorded, instead of paying at the county. They also say checking Box 2 is valid even with a paper gain based only on the sale price, because the actual gain may not be known until the seller gathers the records for their basis.

Which form fits your closing is your attorney's call. On a home you've owned for decades, run your gain early. See capital gains on a long-owned home.

What other exemptions might apply?

The GIT/REP-3 lists 16 seller's assurances. Two that come up in home sales: Box 6, where the total consideration is $1,000 or less, and Box 14, where the seller isn't receiving net proceeds on the settlement sheet. The Division also notes there's no special exemption for a sale from parents to children (GIT/REP FAQ).

Realty transfer fee exemptions don't carry over. The FAQ says they don't apply to the nonresident payment, so a reduced transfer fee doesn't reduce this. More on that fee in the realty transfer fee partial exemption.

How do you get an overpayment back?

Two ways, according to the Division. File the New Jersey nonresident return, Form NJ-1040-NR, for the year of the sale, where the payment is reported as an estimated payment. Or, before the end of the tax year, file Form A-3128 for an early refund, with proof of the overpayment such as your settlement statement. The early refund doesn't replace the return (GIT/REP FAQ).

What should you do before you list?

• Decide where you'll be living on the closing date, because that drives which form you sign.
• Gather your basis records and get your gain estimated by a tax professional.
• Tell your attorney at the start that you're leaving the state.
• Get your number with a free home value so the estimate starts from a real price.

I keep the closing dates, the out-of-state move and the paperwork on one timeline, the same way I do for any downsizing move.

Frequently Asked Questions

Is the NJ exit tax an extra tax?

No. It's an estimated payment of New Jersey income tax on the sale, and any overpayment is refunded or credited when you file.

Do I pay the exit tax if the house was my primary residence?

Possibly not. A home used exclusively as a principal residence under Section 121 may qualify for an exemption on the GIT/REP-3. Your attorney confirms it.

What if I sell at no gain?

If no exemption applies, the Division says the 2% minimum is still due at closing, and you claim any overpayment back.

Who submits the payment?

It goes with the GIT/REP-1 and the deed to the county clerk, who forwards it to the Division. Your closing agent handles it.

This is general information, not legal, tax or lending advice. Rules come from the NJ Division of Taxation GIT/REP FAQ (updated 09/28/26), Form GIT/REP-3 (8-25) and IRS Publication 523, checked October 10, 2026. Your attorney and tax professional confirm what applies to your sale.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. Read more about Dennis Mark.

Keep reading

• How Dennis Mark plans a downsizing move and the Downsizing Guide
• When I sell my home, do I pay tax?
• What paperwork you need to sell in New Jersey
• Have a question this didn't answer? Send it to Dennis Mark and it may become the next article.