NJ Exit Tax on a Rental: What Nonresident Sellers Pay

Published September 30, 2026  ·  Last updated: September 2026  ·  Tax Preparation & Planning

Selling a Bergen County Rental When You No Longer Live in New Jersey

By Nick Termine, CPA and Stephen Calvo, CPA, Partners, TC Advisors CPA | Licensed NY & NJ

What Does New Jersey Actually Require?

New Jersey's form GIT/REP-1 states the rule plainly: a nonresident individual, estate, or trust selling or transferring property in New Jersey must make a Gross Income Tax estimated payment. The amount is the estimated gain multiplied by the highest Gross Income Tax rate, currently 10.75%, and the same form states the estimated payment cannot be less than 2% of the consideration received. The required payment is therefore the greater of the two numbers, and the Division's own guidance in Technical Bulletin TB-57 confirms the payment can exceed 2% of the price.

Read those two rules together and the structure becomes clear: this is the state collecting tax in advance from someone who has just stopped having a reason to file a New Jersey return. That is the entire policy rationale. A resident who sells property still files here next April; a nonresident who sells their last New Jersey asset has no such incentive, so the state takes its money at the closing table. Calling it an exit tax makes it sound like a penalty for leaving. It is not. It is a withholding mechanism, and the operative word on the form is estimated. If the estimate exceeds what you owe, the difference is refundable. If your actual gain is small, or you sold at a loss, the refund can be most of the payment.

Which GIT/REP Form Do You Want?

Everything at closing turns on which GIT/REP form gets filed. Your closing attorney handles the filing, but the choice is driven by facts you control and should establish before the closing date.

Table: the three GIT/REP forms and what each means for cash at closing. TC Advisors CPA, September 2026.

The third row is the one that matters most, because it is the one people fail to claim. GIT/REP-3 covers several exemption grounds, two of them common. The first is residency: the form covers a seller who is a resident taxpayer of New Jersey under the Gross Income Tax Act. The second is the principal-residence exemption, where the property is used as a principal residence as defined in Internal Revenue Code Section 121. If you moved out of New Jersey and rented the property before selling, that second exemption usually stops applying, which is precisely the situation most out-of-state owners of a Bergen County rental are in.

Why Does the 2% So Often Overshoot?

The floor is a percentage of the sale price. Your actual tax is a graduated-rate tax on the gain, and the payment formula's gain prong runs at the single highest rate rather than your real bracket. Those are three different numbers, and they diverge badly in exactly the situations rental owners find themselves in.

How Does Depreciation Change the Math?

There is a second layer that catches rental owners specifically, and it runs the other way. If you rented the property, you took depreciation, or you were entitled to take it whether or not you did, and that depreciation reduced your basis. When you sell, the reduction comes back as gain.

So the arithmetic gets worse before it gets better. On a property held fifteen years, accumulated depreciation on the building can be well into six figures, and all of it increases the taxable gain, which also changes which prong of the formula governs. Add six figures of accumulated depreciation to the $81,000 gain above and the estimated gain can climb past $200,000, at which point 10.75% of the gain exceeds the $13,000 floor and becomes the required payment. Your actual gain may be much larger than you assumed because of depreciation you forgot you claimed, so the closing-table payment grows with it, while your federal reserve may still be short at the same time. The state and federal exposures are independent, and they do not cancel out. We cover the federal side in our guide to depreciation recapture on rental property.

How Do You Get the Money Back Sooner?

There are two routes, and they operate on very different timelines. The ordinary route is to file a New Jersey nonresident income tax return (NJ-1040NR) for the year of sale: you report the actual gain, credit the estimated payment already made, and claim the refund. It is straightforward and slow, because it happens in the normal filing cycle.

The faster route is Form A-3128, the claim for refund of an estimated Gross Income Tax payment on the sale of real property. It exists specifically so a seller who obviously overpaid does not have to wait until the following April. Which route is right depends on the size of the overage and how far you are from filing season: a seller who closed in February and overpaid substantially has a strong case for the earlier claim, while a seller who closed in November is usually better off simply filing the return.

Should You Consider a 1031 Exchange?

There is a route that avoids the problem rather than reclaiming it afterwards. If you exchange the property into another investment property under Section 1031 rather than selling it outright, the gain is deferred and the estimated-payment analysis changes with it. But the timing is unforgiving: a 1031 exchange requires a qualified intermediary in place before closing, identification of replacement property within 45 days, and completion within 180 days. You cannot decide to do a 1031 after the proceeds hit your account, because at that point the money has been constructively received and the exchange is gone.

This is the single most common avoidable mistake we see on New Jersey investment property: an owner sells, pays the 2%, absorbs the federal gain and the depreciation recapture, and only then asks whether anything could have been done. By then the answer is no. If there is any chance you want to stay invested in real estate, have the 1031 conversation before you sign a listing agreement, not before closing. Our New Jersey 1031 exchange timeline sets out the deadlines in order. A 1031 is not automatically the right answer, it defers rather than eliminates, and trading into a worse property just to avoid tax is a bad trade, but it should be a decision rather than something that expired while nobody raised it.

What If the Property Is in an LLC or Co-Owned?

Single-owner situations are the simple case, and most Bergen County rental property is not held that way. If the property is held by a multi-member LLC treated as a partnership, the analysis moves to the owners: each owner's residency status is assessed separately, and the consideration is apportioned by ownership percentage. GIT/REP-1 asks for exactly that, collecting the seller's percentage of ownership, the total consideration, and the owner's share of consideration.

That produces outcomes people do not expect. Two siblings who inherited a property, one living in Fair Lawn and one in Florida, are treated differently at the same closing on the same property: the New Jersey resident can certify out, the Florida resident cannot. Single-member LLCs are generally disregarded, so the analysis follows the individual member's residency. Estates and trusts have their own treatment, and the form addresses nonresident estates and trusts explicitly. Where ownership is split, get the residency question settled for every owner well before the closing date, because discovering at the table that one owner's certification does not hold is a delay nobody has time for. If you are weighing how to hold the next property, our guide on holding rental property in an LLC versus your own name is a useful companion.

Frequently Asked Questions

Does New Jersey have an exit tax?+

Is the 2% calculated on my profit or the sale price?+

Can I avoid the payment entirely?+

How do I get the overpayment back?+

I moved out of New Jersey last year. Which am I?+

Does this apply if I sell at a loss?+

Nick Termine, CPA and Stephen Calvo, CPA are the co-founding partners of TC Advisors CPA, a boutique tax and advisory firm in Hackensack, New Jersey. Both began their careers in Big Four public accounting and advise property owners and closely held businesses across Bergen County and the New York metro. TC Advisors is licensed in New York and New Jersey.

Related: Depreciation Recapture on Rental Property, The New Jersey 1031 Exchange Timeline, and Taxes on Selling a Rental Property.