Understanding New Jersey’s Transfer Tax: A Quick Guide
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Joseph Gordon EditorJoseph Gordon is an Editor with HomeLight. He has several years of experience reporting on the commercial real estate and insurance industries.
When selling your New Jersey home, you have to consider a number of factors that will impact your bottom line—one of which is the real estate transfer tax. You may have even found yourself googling the phrase “NJ transfer tax” and coming up empty.
Don’t worry. This tax is levied on the transfer of property ownership and can vary depending on the location and specifics of the transaction. Understanding how transfer taxes work in New Jersey is important as you prepare to sell your home in the Garden State.
Our guide will cover who is responsible for paying these taxes, the different types that may apply, and any exemptions that might benefit you. Additionally, we’ll provide insight into estimating these taxes for your home sale, ensuring you’re fully informed every step of the way.
Whether you’re a first-time seller or experienced in real estate transactions, our guide is designed to demystify New Jersey transfer taxes, helping you confidently manage your home sale.
Connect with a Top Agent to Help Maximize Value
Even rockstar agents can’t make your tax liability disappear, but HomeLight data shows that the top 5% of agents across the U.S. help clients sell their home for as much as 10% more than the average real estate agent, helping offset the tax bill.
Disclaimer: This post is for educational purposes only and does not constitute legal or financial advice. Links and mentions of New Jersey area tax services or attorneys should not be considered endorsements.
What are transfer taxes?
Real estate transfer taxes are levied by state or local governments when the ownership of a property changes hands. This fee is applied while exchanging the property’s title — the formal document representing one’s legal ownership. The Federal Trade Commission outlines these taxes as charges due when the title to a property is transferred from one owner to another.
The amount of this tax can vary significantly based on the property’s location, as each state, county, and city may have its own rates and regulations governing these transactions.
The primary purpose of transfer taxes is to generate revenue for government entities. These funds contribute to various public services and infrastructure projects within the community. As a homeowner looking to sell your property, the transfer tax becomes a part of the closing costs, contingent on the laws and guidelines specific to your property’s location.
Understanding these charges is essential for anyone involved in the real estate transfer process, as they impact the overall cost of buying or selling a property.
Who pays for transfer taxes?
In New Jersey, the responsibility for paying transfer taxes often falls on the seller. This practice is standard across the state, where sellers are expected to cover the cost of the transfer tax as part of the closing costs associated with the sale of a property. The exact amount can vary, influenced by the home’s sale price and any applicable county or municipal rates.
However, it’s important to note that specific agreements between buyers and sellers can alter who pays the transfer tax. In some instances, this cost burden can be negotiated as part of the sales agreement.
Therefore, buyers and sellers in New Jersey should consult their real estate professionals to understand how transfer taxes might be handled in their particular transaction.
What are the types of transfer taxes?
Transfer taxes will typically be charged based on state, county, or city guidelines. This will vary by location, and some municipalities will leverage additional transfer taxes or fees beyond these criteria. Here’s a brief look at some examples for the state of New Jersey.
State transfer taxes
The New Jersey Department of Taxation mandates a Realty Transfer Fee (RTF) to be paid by sellers when recording a deed of sale for real property. This fee is determined either by the sale price mentioned in the deed or, in some cases, by the property’s assessed value divided by the Director’s Ratio.
The RTF is applicable to all actual property title transfers in New Jersey, with specific exemptions available. Sellers claiming any exemption from the RTF must submit an Affidavit of Consideration for Use by Seller (Form RTF-1) alongside the deed.
Rates will vary by the value of the property. For example, for properties valued below $350,000:
- $2.00/$500 of consideration not in excess of $150,000;
- $3.35/$500 of consideration in excess of $150,000 but not in excess of $200,000;
- $3.90/$500 of consideration in excess of $200,000 but not in excess of $350,000.
The rate increases for properties valued above $350,000.
- $2.90/$500 of consideration not in excess of $150,000;
- $4.25/$500 of consideration in excess of $150,000 but not in excess of $200,000;
- $4.80/$500 of consideration in excess of $200,000 but not in excess of $550,000;
- $5.30/$500 of consideration in excess of $550,000 but not in excess of $850,000;
- $5.80/$500 of consideration in excess of $850,000 but not in excess of $1,000,000;
- $6.05/$500 of consideration in excess of $1,000,000.
County transfer taxes
Counties handle the distribution of their share of the revenue generated from Realty Transfer Fees (RTF). In Sussex County, New Jersey, for instance, any document presented to the County Clerk that aims to transfer ownership of real estate within the state is required to include payment of the RTF, calculated based on the transaction’s value as stated in the document.
Payment of the RTF should be made through an attorney’s trust account. Additionally, for transactions where the fees amount to $10,000 or more, the payment must be made with bank-certified funds, such as a certified check, bank check, or money order.
Other transfer fees
The buyer is responsible for the Controlling Interest Transfer Tax (CITT), a 1% charge levied on transactions involving the acquisition of a controlling interest in an entity that owns real property, either directly or indirectly.
The CITT applies specifically when the property in question is classified as “4A Commercial” and the transaction value or valuation exceeds $1 million. However, buyers can be exempt from the CITT if they cover an additional fee on transfers of certain real estate properties valued over $1 million.
Are transfer taxes deductible?
Transfer taxes do not qualify for tax deductions. Yet, there’s a silver lining, as these taxes might help reduce your capital gains tax obligation. Capital gains are the profits from selling your property, similar to earnings from other assets, and are taxable at the federal level.
According to the IRS, sellers can consider transfer taxes as part of the property’s selling expenses. This allows sellers to deduct these costs from the home’s final sale price.
Consequently, this adjustment can lower the amount of capital gains taxes due on the profit from the sale. For more details on treating transfer taxes as selling costs, the IRS provides guidelines that can be beneficial for sellers aiming to optimize their tax outcomes.
Transfer tax exemptions
There are several situations where a New Jersey seller might be exempt from the transfer tax. Here are some examples, according to the New Jersey Division of Taxation:
- For considerations under $100.
- Transactions involving the U.S., this State, or their entities.
- To secure or release a debt.
- Correcting or confirming previous deeds.
- Due to delinquent tax sales.
- For partition purposes.
- By bankruptcy trustees or similar entities.
- For “ancient deeds” as per R.S. 46:16-7.
- If acknowledged before July 3, 1968.
- Between spouses or parent and child.
- Transferring cemetery lots.
- Enforcing a final judgment.
- Releasing reversion rights.
- If RTF is already paid in another county with evidence.
- By executors to heirs as per will or state law.
- Post-divorce decree within 90 days to dissolve marriage ties.
- From cooperative to condominium conversion for shareholders.
Estimating transfer taxes for your home sale
For a quick estimate of the potential proceeds from your home sale in New Jersey, consider using HomeLight’s Net Proceeds Calculator. This tool helps sellers like you understand what you might earn after accounting for closing costs, including transfer taxes, agent commissions, and any pre-sale home improvements.
Moreover, engaging with a top real estate agent is invaluable for navigating the complexities of your home sale, especially regarding transfer taxes and other closing costs. While these fees are typically assigned to the buyer or seller, the actual responsibility can vary and may even be negotiable, depending on the current real estate market conditions.
A skilled agent can offer guidance on whether these costs can be negotiated and how to best approach this in your sales strategy. Partnering with an expert ensures you’re fully informed and prepared at every step of your home-selling journey.
Header Image Source: (Manisha Raghunath/ Unsplash)
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