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jgordosea
jgordosea, Enrolled Agent
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Experience:  I've prepared all types of taxes since 1987.
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Selling a vacation home in NJ in either 2013 or 2014. What

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Selling a vacation home in NJ in either 2013 or 2014. What will my taxes be to the state of NJ and I also understand there is going to be a new federal real estate tax levied on certain properties (3.8%) in 2014 to help fund the new Health Care laws.
Home value is approx 700K, mortgage bal is approx 430K. Thanks.
Submitted: 2 years ago.
Category: Tax
Expert:  WiseOwl58 replied 2 years ago.

Your tax liability will be determined based on your capital gain from selling the house. Regardless of what your mortgage balance is, the tax that you owe will be computed by subtracting the net sales price (sales price less brokerage commission etc.) from your basis in the house. Your basis in the house is generally the amount you initially paid for the house, plus any capital improvements that you made in the house that increased the value of the house.

 

Subtract the basis from the sales price and that is the amount that you will have to pay taxes on.

 

Hope this helps. I wish you all the best in the sale of the house. Good luck to you.

Customer: replied 2 years ago.
,Tx, I've calculated cost basis on another property so I can figure the taxable amount, easy. But 2 things I asked that I need answers on:

1. I understand that the State of NJ imposes a special tax on vacation property. What is the % rate?

2. Beginning January 1, 2013, the health insurance laws will impose a 3.8% Medicare tax on unearned income on certain taxpayers which could apply to proceeds from the sale of single family homes, townhouses, co-ops, condominiums, depending on your individual circumstances and any capital gains tax exclusions. I have already taken the one time cap gains exclusion on sale of another property.

How can I find out if this tax will apply to my sale and what the rate will be?

Expert:  jgordosea replied 2 years ago.

Greetings,

Another expert here.

 

1. There is not a special tax on vacation property; but there are some special rules that require withholding of estimated tax payment from nonresidents at the time of sale in New Jersey (which is quite confusing for many).

See, for example, the article N.J.'s exit tax: So baffling, even officials can't explain it

at http://www.nj.com/business/index.ssf/2010/10/nj_exit_tax_has_real_estate_at.html

"Here's how the exit tax works: As soon as a non-resident sells a property, New Jersey withholds either 8.97 percent of the profit or 2 percent of the total selling price, whichever is higher."

"When such a seller eventually files his New Jersey tax return, he is refunded the difference between what is owed and what was withheld."

 

For more information see the FAQ from the NJ tax department at
http://www.state.nj.us/treasury/taxation/gitrepfaqs.shtml

"Q: How do non-resident sellers/grantors calculate the estimated Gross Income Tax payment on the sale/transfer of real property in New Jersey?
A: In accordance with N.J.S.A. 54A:8-9(a), the gain on the sale/transfer is multiplied by the highest rate of tax (8.97% effective 8-1-2004) for the taxable year provided in N.JS.A. 54A:2-1, but the estimated tax payment shall not be less than 2% of the consideration for the sale or transfer stated in the deed affecting the conveyance."

 

Estimated tax payment will be collected at the time of sale from a nonresident and used in computing the balance due or refund when the New Jersey tax return is later filed.



2. The new Medicare tax that begins in 2013 is a 3.8 percent tax on the taxable profit from the sale of a home and from all taxable investment income (interest, dividends, annuities, royalties,...) when modified adjusted gross income exceeds $200,000 filing single or $250,000 married filing jointly.

 

The rate is 3.8% in addition to any other capital gain tax; but whether or not it will be applied to this sale will depend on your modified adjusted income when filing for 2013.

Of course, there is a distinct possibility that law will change before 2013, as well.

 

For more information see http://health.burgess.house.gov/uploadedfiles/one_page_on_unearned_medicare_tax.pdf

.

.

 

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Please ask if you need clarification.

Thank you.

 

 

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3031
Experience: I've prepared all types of taxes since 1987.
jgordosea and 2 other Tax Specialists are ready to help you

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