How does the exit tax work if you are getting divorced?

By Karin Price Mueller | NJMoneyHelp.com for NJ.com

Q. How does the exit tax work if you are getting divorced? I will temporarily be leaving the state to live with my parents. I will travel back and forth after the sale of the house, living in both New Jersey and another state. My ex will stay in New Jersey.

— Moving around

A. The so-called exit tax isn’t really an extra tax, but it’s an estimated tax payment based on the sale of a home.

You say you will be traveling back and forth between New Jersey and another state, living in both states.

You must decide which state is your state of residence, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

He said if your intention is to someday live and work entirely in New Jersey, then you should maintain New Jersey as your state of residence.

“If that is the case you would continue to file a NJ-1040 Resident Income Tax Return. You would also file a Non-Resident Income Tax Return to show the salaries and wages earned in the other state,” he said.

New Jersey would grant you a credit for income taxes paid to the other state so you would not be paying income taxes to two states on the same income, he said.

If your principal residence was the house that you are selling and you lived in it for at least 24 months out of the preceding 60 months, then the first $250,000 of gain on the sale of your half of the home is tax-free, Kiely said, noting this is the IRS’ Section 121 exemption.

“If you meet the 24-month test and remain a New Jersey resident, then all you have to do is declare you are a resident taxpayer and you qualify for an exemption under Section 121 if the real property being sold or transferred was used exclusively as your principal residence,” he said. “In this case, you would not be required to make an estimated tax payment when you sell your current home.”

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Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.