If you’re considering buying or selling a home in New Jersey this year, it’s important to understand the tax implications you’ll be faced with. While many taxes are expected and straight-forward, like property taxes, transfer taxes are slightly more ambivalent and are often not well-understood.
Real estate transfer taxes are charged whenever a property changes ownership. These taxes are charged at the state, county, and city level and the responsible party (buyer or seller) varies depending on your location and specific contract.
It’s recommended that buyers or sellers partner with an experienced local agent to help better understand how real estate transfer taxes work in your specific area. The below guide will also walk you through how transfer taxes work in New Jersey.
Who Pays Transfer Taxes in New Jersey: the Buyer or the Seller?
While some real estate contracts can be drawn up so that the buyer is responsible for paying all or some of the transfer taxes, in New Jersey, it’s 100% the seller’s responsibility. The only time a buyer will have to put any money towards transfer fees is when the total home sale is over $1 million.
How Much Are Transfer Taxes in New Jersey?
Most states have a fixed state level tax rate for real estate transfer taxes, but New Jersey is a little different. New Jersey has different rates set depending on the total value of the home being sold.
For example, in New Jersey, homes at or under $150,000 have a $2.00 tax per every $500 of value, home between $150,001 and $200,000 have a $3.35 tax per every $500 of value, and home between $200,001 and $350,000 have a $3.90 tax per every $500 of value.
Things become a bit more complex if you sell a home over $350,000. You’re still expected to pay the $3.90 tax per $500 of value, up to the $350,000 mark. From there, you’re taxed based on how many thousands of dollars over $350,000 your home sold for.
For instance, if your home sells for $400,000, you’d be taxed at $3.90 per $500 of value for the first $350,000 and would use the following guide to determine how the remaining $50,000 would be taxed.
Taxation on Homes Over $350,000 (starting after $350,000 mark)
- $150,000 or less - $2.90 per $500 of value
- $150,001 - $200,000 - $4.25 per $500 of value
- $200,001 - 550,000 - $4.80 per $500 of value
- $550,001 - 850,000 - $5.30 per $500 of value
- $850,001 - 1,000,000 - $5.80 per $500 of value
- $1,000,000+ - $6.05 per $500 of value
There are lower rates offered to senior citizens, blind, and disabled applicants, which can be found here. In addition, buyers who purchase a home over $1,000,000 will be charged a 1% transfer tax fee.
You can better calculate your estimated real estate transfer taxes using this online calculator or with the help of a qualified real estate agent.
Can You Deduct Transfer Taxes?
While many real estate taxes can be deducted at the end of the year, transfer taxes in New Jersey are not able to be deducted. Neither the seller or buyer can deduct transfer taxes on their taxes.
The only exception occurs if the property is used as an investment or rental property, in which case the seller could deduct them as a work expense.
While transfer taxes can’t be deducted, they can help lower your taxes since they can be deducted from the total selling price, saving the seller money on capital gains expenses at the end of the year.
Real estate transfer taxes are generally paid at the time of closing and should be factored into every seller’s budget ahead of time. The total amount of transfer taxes due will be listed on both the seller and buyer’s settlement forms.
In order to avoid any surprises or find out if you’re eligible for any exemptions from transfer taxes in New Jersey, you should team up with a qualified local real estate agent. Whether selling or buying a home, a local agent can help you navigate through the confusing tax implications that pop up during the buying and selling processes.
If you don’t already have an agent, Clever can connect you with an experienced real estate agent near you.