Before buying and selling property in New Jersey, be sure you know the taxes that get tacked onto your purchase price or selling price. Some of the taxes are such that they could cause you to lose a deal if you don’t have enough money to cover them. Many of these taxes are for unique requirements. At the very least, these requirements could delay a closing. Capital gains taxes, the mansion tax and the realty transfer fee are all payable at the closing.
The Mansion Tax
If you buy a property that is worth over $1 million, and that property is classified as a Class 2 residential home or a Class 4A commercial property, you must pay a 1 percent tax on the transfer. The mansion tax does not apply to certain properties over $1 million, including but not limited to industrial sites, vacant land and multifamily apartment buildings. You pay the fee at closing to the county clerk.
If the transfer is to a government entity, by a non-profit company, or between commonly-owned entities, the mansion tax does not apply. Other exemptions might be applicable to your situation. Be sure to consult a real estate attorney, tax attorney or your real estate agent if you believe you might be exempt. Additionally, the disabled and seniors get partial exemptions.
The Realty Transfer Fee
This tax is paid by the seller, and ranges on a graduated tax of 1 to 1.5 percent of the amount the buyer pays for the property. Even properties with mortgages and properties that you trade for other properties or even personal property are not exempt. The seller pays the realty transfer fee upon the recording of the deed. However, the buyer and seller can make a deal where the buyer pays this tax. As with most taxes, some exemptions apply, including:
When consideration for a property is less than $100;
A government entity is buying the property; and
When the conveyance is between commonly owned entities.
Seniors and the disabled get a partial exemption.
Capital Gains Tax
Every property seller has to file either a Seller’s Residency Certification or a Seller’s Non-Residency Certification with the property deed. If you are not a resident of New Jersey or if you are an estate or trust that is not a resident, you have to estimate the capital gains tax on the sale of the property. The estimate cannot be less than 2 percent of the purchase price and is payable at closing.
When you file your state taxes, you find out how much you should have paid. If you overpaid, you would get a check back. If you underpaid, you would have to pay the difference.
When the seller has to pay the tax, they could increase the price of the property to cover the taxes. If the seller does that, there is a possibility that the property will not appraise. That could be a deal-breaker if you don’t have enough money to make up the difference since a lender usually will not finance any amount over the appraisal. In most cases, lenders like you to put 20 percent down, which means you might have to come up with 20 percent of the appraised value plus the amount over and above the appraised value.