NJ Inheritance Tax on a House: Who Pays and How Much?

In New Jersey, inheritance tax depends on who inherits the house, not on the house itself: a spouse, child, grandchild, parent or stepchild pays nothing, while a sibling, niece, nephew or friend can owe between 11 and 16 percent of their share. There's no New Jersey estate tax for anyone who died on or after January 1, 2018.

I'm Dennis Mark Interdonato with The Dennis Mark Group at Keller Williams Realty Ocean Living. I don't prepare tax returns, and you shouldn't take tax advice from a realtor. What I can do is explain how the tax touches an estate home sale in Monmouth and Ocean County, so you walk into the attorney's or accountant's office knowing the right questions.

Who has to pay New Jersey inheritance tax?

The NJ Division of Taxation calls it a "beneficiary" tax, based on who receives the assets and how much each one receives. Its inheritance tax page says the amount depends on who the beneficiaries are and how they were related to the person who died, the date of death value of what that person owned, what kind of assets they were, and whether the person lived in New Jersey or another state. Where the beneficiaries live isn't a factor.

The Division sorts beneficiaries into classes:

• Class A, no tax: a spouse, civil union partner or domestic partner, a child (including an adopted child), a grandchild or great-grandchild, a parent or grandparent, a mutually acknowledged child, and a stepchild, but not a step-grandchild.
• Class C, taxed after an exemption: a brother or sister, and a son-in-law or daughter-in-law (the spouse or surviving spouse, or civil union partner, of a child).
• Class D, taxed: everyone not in Class A, C or E, which includes nieces, nephews, aunts, uncles, friends and other non-relatives.
• Class E, no tax: qualified charities, religious, educational and medical institutions, and the State of New Jersey and its political subdivisions.

How much is New Jersey inheritance tax?

These are the rates on the Division's tax rates page, checked today:

• Class C: no tax on the first $25,000, 11 percent on the next $1,075,000, 13 percent on the next $300,000, 14 percent on the next $300,000, and 16 percent over $1,700,000.
• Class D: 15 percent on the first $700,000 and 16 percent over $700,000.

The Division's general information sheet adds that no tax is imposed on a transfer to a beneficiary with an aggregate value of less than $500.

Two examples, using those published rates and ignoring anything the estate's accountant might adjust. If a sister's share of the estate is worth $400,000, the first $25,000 is untaxed and the next $375,000 is taxed at 11 percent, about $41,250. If a niece's share is worth $400,000, Class D applies at 15 percent, about $60,000. Same house, very different bill. That's why one of the first things to pin down is who the will leaves the house to.

When is the tax due, and what happens if it's late?

The Division says an inheritance tax return must be filed, and the tax paid, within eight months after the date of death. Interest on unpaid tax accrues at 10 percent a year starting eight months after the death, and the tax is a lien on all New Jersey property for 15 years from the date of death unless it's paid sooner or a bond is filed (Form O-10-C).

That lien is why the tax shows up at the closing table. The Division's Guide to Being an Executor says real estate transfers always require a Form 0-1 waiver, which only the Division issues. The waiver isn't granted until any tax due has been paid or provided for.

Do Class A heirs have to file anything?

Usually a short form instead of a full return. When every beneficiary is Class A and no tax or return is due, the executor, administrator or a joint tenant can request the real estate waiver with Form L-9. The form can't be used if any asset worth $500 or more passes to someone outside Class A. And a house held as tenants by the entirety with a surviving spouse needs no waiver at all.

The Executor's Guide says that if there are any Class C, D or E beneficiaries, a full return is needed, even when no tax ends up being due. It also tells executors to plan on processing taking at least several months. My separate article on the inheritance tax waiver for a house walks through the forms.

How is the house valued for inheritance tax?

At its fair market value on the date of death, not on the day the return is filed, according to the Executor's Guide. That's one more reason to get a solid read on value early. I can share my market evaluation of the home with the estate's attorney and accountant, and they decide whether a formal appraisal is needed. Read more about the date of death value of an inherited house.

What if the person who died lived in another state?

The Division says people who didn't live in New Jersey but owned New Jersey real estate may be subject to New Jersey non-resident inheritance tax. That can apply when someone who lived out of state owned a shore house in Ocean County or a second home in Monmouth County. The attorney will confirm which return applies.

What does this mean for selling the estate home?

1. Know the beneficiaries early. The class of each heir decides whether there's tax, which form is filed and how long the waiver may take.
2. Value the house now. Start with my home value tool, then let me walk it. The number matters for the tax return and for the sale.
3. Plan the waiver into the timeline. We can prepare, list and market while the attorney works on the tax side, so the house isn't what holds the estate up.
4. Keep everyone on the same page. I send the executor and every heir the same written update at each step.

For the whole process, read my Estate & Probate Guide or see how I sell estate homes.

Frequently Asked Questions

Do children pay inheritance tax in New Jersey?

No. Children, including adopted children and stepchildren, are Class A beneficiaries, which the NJ Division of Taxation lists as exempt from the tax.

Does New Jersey still have an estate tax?

Not for deaths on or after January 1, 2018. The Division of Taxation says no New Jersey estate tax is imposed on those estates. The inheritance tax remains.

Is inheritance tax due when the house sells?

It's due within eight months of the death, whether or not the house has sold. The house can't transfer without the Division's waiver, and the waiver isn't granted until any tax is paid or provided for.

Who decides how the tax is split among the heirs?

That's a question for the estate's attorney, who reads the will and handles the return with the estate's accountant.

This is general information, not legal, tax or lending advice. Talk with the estate's attorney and a tax professional about your situation.

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

• Capital gains tax when you sell an inherited house in New Jersey
• When I sell my home, do I pay tax?
• The Estate & Probate Guide
• Have a question this didn't answer? Send it to Dennis Mark.