New Jersey transfer taxes due upon sale of former residence
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New Jersey Realty Transfer Fees Due on Sale of Residences
Upon the sale of residential real estate, many Sellers are surprised to learn that the transfer is subject to a New Jersey Realty Transfer Fee. This is a tax imposed on Sellers by the State of New Jersey pursuant to N.J.S.A. 46:15-5 et seq. In certain instances the amount can be significant.
First enacted in 1968, and comprised of a modest fee, the Realty Transfer Fee law has been amended several times, most recently in 2004. Each time, not surprisingly, the Realty Transfer Fee has been increased on higher priced real estate.
The Realty Transfer fees are calculated on a sliding scale, with the rate per $500.00 of sales price increasing as the sales price increases. The table below summarizes the standard rates:
Sales Price Realty Transfer Fee
$500.00 to $350,000.00 $2.00 to $2,105.00
$350,000.00 to $1.0 million $2,105.00 to $9,575.00
$1.0 million to $2.0 million $9,575.00 to $21,675.00
and $6.05 per $500.00 in excess of $2.0 million
A reduced Realty Transfer Fee is available to senior citizens, blind persons, and disabled persons on the sale of one-or two-family residences which they own and occupy, and on the sale of low and moderate income housing.
Those reduced fees are:
Sales Price Realty Transfer Fee
$500.00 to $350,000.00 $.50 to $650.00
$350,000.00 to $1.0 million $650.00 to $4,675.00
$1.0 million to $2.0 million $4,675.00 to $11,475.00
and $3.40 per $500.00 in excess of $2.0 million
Certain deed transfers are exempt from the Realty Transfer Fee under N.J.S.A. 46:15-10. The most common of these are:
• Deed for consideration of less than $100.00;
• Deed between husband and wife, or parent and child;
• Deed by an executor or administrator of a decedent to a devisee or heir to effect distribution of the decedent’s estate in accordance with the decedent’s will or the intestacy laws;
• Deed recorded within 90 days following the entry of a divorce decree which dissolves the marriage between the grantor and grantee;
• Deed conveying a cemetery lot or plot;
• Deed in specific performance of a final judgment;
• Confirmatory or corrective deed; and
• Deed of a receiver, trustee in bankruptcy or liquidation, or assignee for the benefit of creditors.
In 2004, legislation was also passed requiring non-resident Sellers to file an estimated Gross Income Tax on the transfer of real property as a condition to recording the transfer. The estimated Income Tax payment is determined by multiplying the Seller’s gain, as computed for tax purposes, times the highest Gross Income tax rate of 8.97%. However, in no case may the estimated payment be less than 2% of the sales price paid.
Finally, there is a Realty Transfer Fee due from the Buyer for purchases of residential property in excess of $1.0 million. This is commonly referred to as the “Mansion Tax” and is 1% of the purchase price. Thus, if the “Mansion Tax” applies, the minimum transfer tax paid by the Buyer is $10,000.00.
Mansion Tax.
The Mansion Tax is paid by the purchaser. The Mansion Tax rate is 1% of the sales price when the price is more than $1,000,000. The Mansion Tax applies to all deeds where the land conveyed is classified under the following Administrative Codes (N.J.A.C. 18:12-2.2) :
•1. Class 2 - The property is residential.
•2. Class 3A - The property is a farm but only if the farm land contains a building or structure intended or suited for residential use.
•3. Class 4A - The property is commercial other than industrial or apartment.
•4. Class 4C- The property is a co-operative unit.
The following classes are not required to remit the mansion tax:
•Class 1 - Vacant land
•Class 4B - Industrial properties
•Class 4C - Apartments (other than cooperative units)
•Class 15 - Public property
The amended RTF-1EE Affidavit of Consideration for Use by Buyer must be used for all transactions over $1,000,000 regardless of property class and whether or not the mansion tax must be paid.
Please note that there is a space at the top of the RTF-1 and RTF-1EE forms that calls for the County Municipal Code. The List of Codes can be found at Municipal Code List.
Furthermore, if the grantee is exempt from federal income taxation under IRC 501 (c)(3) or meets the requirements of the exempt transactions provided in N.J.S.A. 46:15-10, the transfer is exempt. The Mansion Tax Amendment is effective August 1, 2006. Commercial property deeds recorded on or before November 15, 2006 under a contract entered into before July 1, 2006 will get special treatment. The 1% fee must be paid upon recording. the fee will be refunded upon submission of a proper claim to the Division of Taxation.
The law also applies to non-deed transfers of a controlling interest ( over 50% ) in an entity that owns Class 4A property when the total consideration for transfer is in excess of $1,000,000. This provision is intended to prevent the avoidance of the new transfer tax by the sale of a company owning Class 4A property rather than a sale of the property itself. The fee shall not apply to a deed if a real property transfer is incidental to a corporate merger or acquisition and the equilized assessed value of the real property transferred is less than 20% of the total assets exchanged in the mergerof acquisition. A grantee claiming an exemtion from the 1% fee in such instances, when the deed is offered for recording, is now required to file a merger document in addition to an Affidavit of Consideration for Use by the Buyer. For additional information, see the copy of the Notice issued by the State of New Jersey, Division of Taxation annexed herein.
Amendatory Realty Transfer Fee Legislation document.
For transactions involving Class 4A properties subject to the additional realty transfer fee imposed on the buyer, you must complete Section (2) (A) of the RTF-1 and Section (2) (C) of the RTF-1EE. There is a reference to the Director's Ratio to be inserted as part of the calculation. The Director's Ratio is column 2 on the Table of Equalized Values for 2005 established by the Tax Court. The 23-page document listing ratios by county can be found at Director's Ratio link to table of equilized values as posted on Taxation's web site [scroll down to list item on the page].
Please see the information at the following links:
http://www.vested.com/tax_calculator1.html
http://www.atlanticcountyclerk.org/njtransfer.htm
http://www.njlawblog.com/2007/09/articles/residential-real-estate/new-jersey-realty-transfer-fees-due-on-sale-of-residences/