1031 exchanges in New Jersey
The exit tax is easier to solve than its reputation suggests. The realty transfer fee, the rewritten mansion tax, and the Bulk Sales Act are the ones that actually cost people money.
The short answer
New Jersey conforms to Section 1031 by statute, so a properly completed exchange defers state income tax along with federal. The top rate is 10.75 percent above $1 million of taxable income, with no capital gains preference.
The famous "exit tax" is just withholding, and it is exempted for a full exchange by checking box 7 on Form GIT/REP-3. The costs that actually persist are the realty transfer fee and the supplemental mansion fee, both of which a 1031 never defers, and which were made considerably more expensive for sellers in July 2025.
Key facts at a glance
- Top state rate
- 10.75 percent above $1,000,000 of taxable income
- Capital gains preference
- None. Gain and recapture taxed as ordinary income
- Federal conformity
- Yes, N.J.S.A. 54A:5-1(c)
- Nonresident withholding
- Greater of 10.75 percent of gain or 2 percent of consideration
- 1031 exemption form
- GIT/REP-3, box 7a and 7b
- Realty transfer fee
- Graduated, roughly 1.21 percent effective at the top. Not exempt for an exchange
- Supplemental mansion fee
- 1 to 3.5 percent, cliff rates, seller-paid since July 10, 2025
- Clawback
- None
- QI regulation
- None
On this page
The income tax, and two New Jersey quirks
New Jersey's gross income tax reaches 10.75 percent above $1 million of taxable income, with 8.97 percent applying from $500,000 to $1 million. The brackets are not indexed for inflation. The Division of Taxation states plainly that New Jersey does not differentiate between short-term and long-term capital gains, so the whole gain is taxed at ordinary graduated rates.
Two structural features catch people out, and neither has a federal analogue.
New Jersey taxes by category of income. A loss in the disposition-of-property category nets only against gains in that same category. It cannot offset your wages, your rental income, or anything else, there is no carryforward for individuals, and there is no federal-style $3,000 ordinary income offset. An unused net loss is simply reported as zero.
This matters when you are comparing an exchange against a taxable sale, because the loss-harvesting moves that would soften a federal bill often do nothing at the New Jersey level.
New Jersey has no separate depreciation recapture regime and no 25 percent rate. Depreciation simply reduces your New Jersey basis, and the recaptured amount surfaces as additional gain at the ordinary rate.
But New Jersey decoupled from federal bonus depreciation and Section 179 limits for assets placed in service on or after January 1, 2004. If your property has been through that, a New Jersey depreciation adjustment on worksheet GIT-DEP may be required, and your New Jersey adjusted basis will differ from your federal one. Your CPA needs to run both.
The exit tax, and how a 1031 clears it
New Jersey's "exit tax" has a worse reputation than it deserves, largely because the name is misleading. It is not a tax on leaving and it is not an additional tax at all. It is a mandatory estimated income tax prepayment collected at deed recording from nonresident individuals, estates, and trusts, credited against your actual liability and refunded if it overshoots.
The amount is 10.75 percent of the gain, but never less than 2 percent of the consideration received. On a low-gain sale that 2 percent floor is what bites.
| Form | Used when |
|---|---|
| GIT/REP-1 | Nonresident owes and is paying the estimated tax at closing |
| GIT/REP-2 | Nonresident prepaid the tax directly to the Division before recording |
| GIT/REP-3 | Residents, and anyone claiming an enumerated exemption. This is the 1031 form |
| GIT/REP-4 | Division-issued waiver of the filing and payment requirement |
For a fully deferred exchange, use GIT/REP-3 and check box 7:
- 7a — the gain from the sale is not recognized for federal income tax purposes under Section 721, 1031, or 1033.
- 7b — the seller received only like-kind property.
With both checked, no withholding is collected. Note that box 7 also covers Section 721 partnership contributions and Section 1033 involuntary conversions. Do not confuse it with box 14, the separate exemption for a seller receiving no net proceeds.
Unusually among states, the GIT/REP-3 instructions address partial exchanges directly. If the transaction includes non-like-kind property or is otherwise only partially exempt, you may either complete GIT/REP-1, show the greater of the consideration or the fair market value of the non-like-kind property received, and remit 2 percent of the nonexempt amount at recording, or make an estimated payment on Form NJ-1040-ES after recording.
Paying the 2 percent at recording is expressly a safe harbor against further estimated payments on that portion. The true liability is still settled on the return.
The withholding regime applies only to individuals, estates, and trusts. Corporations and partnerships are outside it, as are residents, sales with consideration of $1,000 or less, principal residence sales qualifying under Section 121, foreclosures, short sales, and divorce transfers.
The realty transfer fee and the rewritten mansion tax
Here is where New Jersey exchanges actually leak money, and where the rules changed recently enough that older guidance is wrong.
The realty transfer fee is paid by the seller on a graduated schedule. For consideration above $350,000 the top band is $6.05 per $500 above $1 million, which works out to an effective rate near 1.21 percent at the top. Reduced rates apply for sellers aged 62 and over, blind or disabled sellers, and low and moderate income housing.
The supplemental fee, commonly called the mansion tax, was overhauled effective July 10, 2025. Two changes matter:
- It became graduated rather than a flat 1 percent.
- The obligation shifted from the buyer to the seller.
| Consideration | Supplemental fee |
|---|---|
| $1,000,000 to $2,000,000 | 1.0% |
| Over $2,000,000 to $2,500,000 | 2.0% |
| Over $2,500,000 to $3,000,000 | 2.5% |
| Over $3,000,000 to $3,500,000 | 3.0% |
| Over $3,500,000 | 3.5% |
The applicable percentage applies to the entire consideration. A $2.2 million sale pays 2 percent on the full $2.2 million, which is $44,000 — not 1 percent on the first $2 million and 2 percent on the rest.
That creates a genuine planning point just above each threshold. Selling at $2,010,000 costs $40,200 in supplemental fee; selling at $1,995,000 costs $19,950. The extra $15,000 of price costs you $20,250 in fee. Know where the cliffs are before you negotiate.
The fee applies to Class 2 residential, Class 3A farm with residence, Class 4A commercial, and Class 4C cooperative property. The Controlling Interest Transfer Tax on entity-level sales of commercial real estate was amended with identical brackets and the same shift to the seller, so the entity route is not an escape.
None of this is exempt for a 1031 exchange. The RTF-1 affidavit enumerates the exemptions — consideration under $100, governmental transfers, security for debt, corrective deeds, tax sales, partition, bankruptcy, family transfers, and others — and a like-kind exchange is not among them. On a $3 million New Jersey sale the seller faces roughly $36,000 of standard fee plus $75,000 of supplemental fee, and the exchange defers none of it.
The Bulk Sales Act, which can break your exchange
This one is genuinely dangerous and it is almost never mentioned in general 1031 guidance.
Under N.J.S.A. 54:50-38, the buyer of many New Jersey commercial properties must file Form C-9600 with the Division of Taxation, together with the executed contract, at least 10 business days before closing. If they do not, the buyer becomes liable for the seller's unpaid New Jersey taxes.
The Division may then direct an escrow at closing to cover the seller's potential liability. In an ordinary sale that is an inconvenience. In a 1031 exchange it can be fatal, because escrowed funds are funds that did not reach your qualified intermediary, and money held back can become boot or can leave you unable to meet the value replacement requirement.
The practical answer is to flag the pending exchange on the C-9600 and in the contract, so the Division sizes any escrow against the deferred gain rather than the gross gain. That requires someone to raise it early. Sales of one-to-four family residential and seasonal rental property by an individual, estate, or trust are generally excluded.
No clawback, with a caveat
New Jersey has no clawback statute and no deferred gain tracking form. There is no New Jersey equivalent of California's FTB 3840 or Oregon's OR-24. The four states with such regimes are California, Massachusetts, Montana, and Oregon.
Two honest caveats:
- The absence of a tracking form is well documented. Whether New Jersey has any residual substantive claim on the deferred gain of a nonresident who exchanged out of state is less cleanly settled, and we found no affirmative Division guidance either way. Do not treat "no form" as "no risk" without asking your CPA.
- If you remain a New Jersey resident when you eventually sell, New Jersey taxes worldwide income and the deferred gain returns to the New Jersey base regardless. The planning question is residency at the time of the eventual disposition, not a clawback rule.
New Jersey also does not license or regulate qualified intermediaries. There is no bonding requirement, no escrow segregation rule, and no registration. Diligence is entirely on you. Here is how to do it →
Your New Jersey checklist
- Prepare GIT/REP-3 with box 7a and 7b for a full exchange, and get it to the closing agent before recording.
- If there will be boot, decide in advance between the GIT/REP-1 2 percent route and an NJ-1040-ES payment after recording.
- Model the realty transfer fee and supplemental fee in dollars. They are seller-paid, they are not deferred, and above $1 million they are substantial.
- Check where you sit relative to the mansion tax cliffs at $2M, $2.5M, $3M, and $3.5M before agreeing a price.
- Commercial property: raise the Bulk Sales Act early. The C-9600 is due 10 business days before closing and a Division escrow can break the exchange.
- Ask your CPA for both bases. New Jersey's decoupled depreciation rules mean your New Jersey adjusted basis may differ from your federal one.
- Vet your intermediary yourself. New Jersey regulates them not at all.
Bottom line for New Jersey owners
The exit tax is a paperwork problem with a clear solution. The realty transfer fee and the rewritten supplemental fee are real, unavoidable, seller-paid costs that no exchange touches. And on commercial property, the Bulk Sales Act is the item most likely to derail an otherwise well-planned exchange.
Get all three on the table before you sign anything, and the 10.75 percent deferral is usually well worth having.
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