Do you want to buy or sell a home? Let us help you figure out the complicated tax implications. Here is a real estate tax guide for residents of New Jersey.
Will You Have to Pay Taxes When You Sell Your Home in New Jersey?
The short answer to the question on if you have to pay taxes when you sell your home is "hopefully not." No one enjoys paying taxes, and if you are enjoying making a profit from the sale of your home, you probably already have plans on how to spend the extra money.
Perhaps you are planning to use the money to put a down payment on a new home. Maybe you are ready to downsize, and you are going to go on a few trips with the proceeds before paying cash for a small condo in a retirement community. Regardless of your plans, you want to be able to keep as much of the money as possible from the sale of your home.
The good news is that unless you make more than $250,000 on the sale of your home, you probably won’t have to pay taxes on the gains. If you are married and filing jointly, you won’t have to pay taxes on the sale of your property unless you make more than $500,000 on the deal.
To qualify for this tax exemption, you will have needed to own and to have lived in the home for at least two years. During those two years, you could not have received an exemption on your taxes on the sale of another home.
Is that good news for you? Here are other tax implications to consider.
How Much Are Real Estate Transfer Taxes in New Jersey (and Who Pays Them)?
If you have bought or sold a home before, you know that there are all kinds of extra taxes and fees collected during the closing of the house. One of those taxes is the real estate transfer tax.
States, counties, and cities can charge real estate transfer taxes when a piece of real estate changes hands. Usually, the taxes are based on the percentage of the purchase price of the property in question.
In New Jersey, the deed transfer tax is $4 per $1,000 (or 0.4 %). If you sell a $250,000 property in New Jersey, the seller will be required to pay $1,320 as a state transfer tax.
For transactions over $1,000,000, the seller will pay 0.4% and the buyer will pay 1% for the realty transfer fees.
The fee will be collected at the state level, and then the appropriate amount of the money will be shared with the counties and municipalities.
The realty transfer fee does not apply for sales of less than $100. If family members are selling the property to other family members, the fee does not need to be collected as well.
Senior citizens, blind or disabled persons, and people living in low and moderate-income housing will be exempt from the state portion of this fee in New Jersey.
How to Calculate Property Taxes in New Jersey
If you own a home in New Jersey, you have to pay property taxes.
Property taxes are collected from home owners each year to help fund schools, fire departments, libraries, and other local services.
The amount of property tax you are required to pay usually depends upon the value of your home. How is this value determined?
Usually, the local assessor will compare your property to other homes similar to yours that have recently sold in your area.
There is another way your home’s value could be determined. The assessor could figure out the approximate cost of replacing your home if it was built today. Of course, if your home is older, the assessor would figure in the cost of depreciation. Older homes are not worth as much as newer homes. Also, the value of the land would be factored into as well.
Once your home’s value has been determined, the local mill rate is multiplied by the home’s value.
For example, if your New Jersey property is assessed for $250,000, and your local mill rate is 45, you will have to pay $11,250 per year in local taxes.
If You Have a Mortgage
If you have a mortgage, your mortgage company will collect your property tax money. You may not even know how much you send every month will be for the payment of your loan and how much will be the payment of your taxes. The mortgage company then pays your local government the money you owe.
If you do not have a mortgage, you can send your property tax payment into your local tax authority on a monthly, semi-annual, or annual basis.
The amount your local government collects in property taxes makes a difference on your bottom line.
For example, New Jersey has one of the highest property tax rates in the country. If you live in New Jersey, the tax rate is 2.44%. That means if your home is worth $321,100 (which is the average home value in New Jersey), you will pay $7,840 per year. Your tax bill will be $653.33 a month.
If you live in an area of the country with a low property tax, such as Alabama, the tax on your $169,300 home would be $711.06 per year. That means your monthly tax amount would be $59.25.
As you can see, property taxes make a tremendous difference in your monthly budget. When you are purchasing a home, make sure you understand how much money you will be spending each month on local taxes.
Tax Breaks for New Jersey Home Buyers & Sellers
With all this discussion on how much money you will spend on taxes when you buy, sell, or just own a home, you may feel relief in knowing that there are tax breaks and credits given to buyers.
First off, if you are a first-time home buyer, you could qualify for a tax credit. Talk with your buyer’s agent and mortgage provider to see if you are eligible for this break.
You also may be able to deduct the amount you pay in interest on your mortgage each year. This may change from year to year. Your tax preparer or accountant should be able to tell you whether or not you qualify for this deduction. You can also find out if you are eligible for this deduction if you use online tax preparation software.
In 2018, New Jersey residents could deduct the amount of their property tax or $15,000, whichever is less.
New Jersey residents may also qualify for reductions in the amount of property tax they are required to pay.
Residents age 65 or older and/or the disabled may qualify to receive the Homestead Benefits, which would give them property tax credits.
Your local real estate agent may be able to tell you of other rebates that are available to buyers like you.
Tax Breaks and Write-Offs for Sellers
There are other tax breaks that homeowners should be aware of relating to owning a home.
You could qualify for a deduction if you have expenses to prepare a home to be sold. Usually, the repairs need to be done within 90 days of your closing date.
Finally, if you are an active duty military member, you could deduct moving expenses.
Although this article intends to explain your tax responsibilities and breaks for residents of New Jersey, the amount you are required to pay can vary from region to region.
Before making any decisions on the buying or selling of property, reach out to a tax professional or an accountant to help you determine what your tax responsibility will be.