Since July 10, 2025, the New Jersey mansion tax has been a seller's tax of up to 3.5% of the price, and it sits on top of a gross income tax that reaches 10.75% on the gain itself. New Jersey capital gains tax on real estate follows the ordinary income brackets, and nonresidents prepay it at closing through the GIT/REP forms. A 1031 exchange in New Jersey defers the income tax and removes the GIT/REP payment, but the realty transfer fee and mansion tax are charged on the price and stay due at closing.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Yes. Gross income tax at ordinary rates, top rate 10.75% on income over $1 million |
|---|---|
| Long-term capital gains treatment | No preferential rate or exclusion for investment property |
| Nonresident withholding at closing | Yes. Estimated payment of the greater of 10.75% of the gain or 2% of the sale price |
| Withholding form | GIT/REP-1 (payment); GIT/REP-3 to certify a Section 1031 exemption |
| Transfer or conveyance tax (a 1031 does not defer it) | Realty transfer fee paid by the seller, plus a graduated percent fee (mansion tax) of 1% to 3.5% on sales over $1 million of residential and most commercial property |
| Clawback on out-of-state replacement property | None; no tracking form |
| Conforms to Section 1031 | Yes |
| Local income tax | None on investment gains |
Table of contents
- How much is capital gains tax on real estate in New Jersey?
- New Jersey tax on a $300,000 gain: worked example
- The New Jersey "exit tax": GIT/REP forms and the 1031 exemption
- New Jersey realty transfer fee and mansion tax
- How the 2025 mansion tax change affects exchanges
- Property tax on New Jersey replacement property
- New Jersey conformity and the deferred gain
- Moving into or out of New Jersey
- Where New Jersey exchanges happen
- The federal rules behind every New Jersey exchange
- New Jersey 1031 mistakes to avoid
- Start your New Jersey 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in New Jersey?
New Jersey's gross income tax treats the gain from selling a rental or commercial building as one more item of income. It does not separate long-term from short-term gain and has no deduction for real estate held a long time. Since 2020, the top rate of 10.75% applies to taxable income over $1 million, so a large sale often pushes an otherwise moderate earner into that bracket for the year of the sale.
Depreciation is not taxed separately at the state level. The federal return splits the gain into unrecaptured Section 1250 gain at up to 25% and capital gain at up to 20%, and adds the 3.8% net investment income tax for joint filers with modified AGI above $250,000. New Jersey applies its rate to the whole gain. New Jersey's own basis in the property can differ from federal basis, especially for property held in a partnership, so your CPA should confirm the state gain rather than copying the federal number.
There is no county or city income tax on investment gains in New Jersey. The local cost that matters is property tax, which is covered in the replacement property section below. To see the full federal and state bill next to the exchange outcome, use our capital gains vs. 1031 exchange comparison.
New Jersey tax on a $300,000 gain: worked example
Assumptions: a $300,000 long-term gain on an investment property, $100,000 of it unrecaptured Section 1250 depreciation, a seller already in the top federal bracket and in New Jersey's 10.75% bracket, filing jointly.
| Tax | Math | Amount |
|---|---|---|
| Federal unrecaptured §1250 gain | 25% x $100,000 | $25,000 |
| Federal long-term capital gain | 20% x $200,000 | $40,000 |
| Net investment income tax | 3.8% x $300,000 | $11,400 |
| Federal subtotal | $76,400 | |
| New Jersey gross income tax | 10.75% x $300,000 | $32,250 |
| Total deferred by a full 1031 | $108,650 |
More than a third of the gain goes to tax in a taxable sale. A full exchange defers all $108,650. What it does not defer is the transfer fee and any graduated percent fee on the sale price, covered below. The depreciation recapture calculator breaks out the federal recapture on your own numbers.
The New Jersey "exit tax": GIT/REP forms and the 1031 exemption
New Jersey does not have an exit tax in the sense of a penalty for leaving. What sellers call the exit tax is an estimated gross income tax payment collected at closing from nonresidents. On Form GIT/REP-1, the payment is the gain multiplied by 10.75%, but never less than 2% of the consideration. The 2% floor catches sellers with little or no gain, and it is why a nonresident selling a $900,000 condo can see $18,000 withheld even when the gain is small. Any overpayment comes back only after you file a New Jersey nonresident return.
Every seller, resident or not, signs Form GIT/REP-3, the seller's residency certification and exemption. The current version (revised 8-25) includes a box certifying that the gain is not recognized for federal income tax purposes under Section 721, 1031 or 1033, with the applicable section circled. A nonresident completing a full 1031 exchange checks that box and circles 1031, and no estimated payment is collected. The deed cannot record without the completed form, so have your closing attorney prepare it with our exchange documents in hand.
If you take cash out of the exchange, the exemption no longer covers the whole transaction, and your attorney may treat it as a partial payment situation. Settle that before closing. Foreign sellers also face federal FIRPTA withholding; see our FIRPTA guide.
New Jersey realty transfer fee and mansion tax
A 1031 exchange defers income tax on gain. New Jersey's transfer charges are figured on the price and are paid at closing whether you exchange or not. Two apply to a typical sale:
- Realty transfer fee (RTF): paid by the seller at deed recording. On sales over $350,000, it is charged per $500 of consideration in tiers: $2.90 on the first $150,000, $4.25 from $150,000 to $200,000, $4.80 from $200,000 to $550,000, $5.30 from $550,000 to $850,000, $5.80 from $850,000 to $1 million, and $6.05 above $1 million. That works out to $9,575 on a $1 million sale.
- Graduated percent fee (the mansion tax): on sales over $1 million of Class 2 residential property, farms with a residence, Class 4A commercial property other than industrial and apartment buildings, and co-op units. The rate applies to the whole price: 1% over $1 million, 2% over $2 million, 2.5% over $2.5 million, 3% over $3 million and 3.5% over $3.5 million. Since July 10, 2025, the seller pays it.
Example: a $2.2 million rental house pays about $24,095 in RTF and $44,000 in graduated percent fee, roughly $68,000 before the proceeds reach your intermediary. Both are selling expenses, so they can come out of the closing without creating boot, but they reduce the equity you can reinvest. Set your replacement target from the net.
How the 2025 mansion tax change affects exchanges
Before July 2025, New Jersey's mansion tax was a flat 1% paid by buyers. The June 30, 2025 law made it graduated and moved it to the seller. For exchangers that cuts two ways.
- Sale side costs more. A $4 million office or retail building now carries a 3.5% fee, $140,000, paid out of your proceeds. That money is gone before the exchange starts.
- Purchase side costs less. Because the buyer no longer pays it, a New Jersey replacement property over $1 million no longer adds a mansion tax at your replacement closing.
- Asset class matters. Industrial and apartment buildings are outside the Class 4A definition that the fee reaches, so a warehouse or apartment sale avoids the graduated fee entirely while a retail strip at the same price pays it. Confirm the property class on the tax bill before you price the deal.
Property tax on New Jersey replacement property
New Jersey's effective property tax rates are among the highest in the country, and each municipality sets its own rate and revalues on its own schedule. On a replacement building, that one line can move the yield more than the income tax you deferred. Pull the current general tax rate and equalization ratio from the municipal tax assessor before you identify, and do not underwrite from the seller's last bill if the town has a revaluation pending. Many New Jersey owners trade up into out-of-state property partly for this reason.
New Jersey conformity and the deferred gain
New Jersey recognizes like-kind exchanges, so gain deferred on your federal Form 8824 is also deferred on your NJ-1040 or NJ-1040NR. There is no separate state election and no annual tracking form like California's FTB 3840 or Oregon's OR-24.
The deferred gain stays with the replacement property's basis. If you are a New Jersey resident when you finally sell in a taxable sale, New Jersey taxes the full gain wherever the property sits. The permanent exit is holding until death, when heirs receive a stepped-up basis; our swap-till-you-drop guide explains that plan.
Moving into or out of New Jersey
New Jersey taxes nonresidents on gain from New Jersey real estate. Moving to Florida before you sell does not remove the tax; it converts it into a GIT/REP-1 payment at closing, unless the sale is part of an exchange. Once you are a Florida resident, a later taxable sale of Florida replacement property is outside New Jersey's reach in the ordinary case.
The most common outbound move is into Florida or the Carolinas, where property taxes are lower and there is no state income tax on a Florida sale. Many South Jersey owners exchange across the river into Pennsylvania, which now defers its own 3.07% tax, and inbound capital often comes from New York owners buying Hudson County multifamily or Turnpike warehouses.
Where New Jersey exchanges happen
Hudson County is the state's densest multifamily market. Jersey City and Hoboken price off Manhattan, and newer towers trade alongside older walk-ups. Newark and the Bergen, Essex and Union suburbs add commuter multifamily, retail and medical office.
Industrial is the other engine. The Turnpike corridor from the Meadowlands through Exits 8A and 10 and the Port Newark-Elizabeth area is one of the most active warehouse markets on the East Coast, and a common destination for owners trading out of management-heavy residential property. Central Jersey along Route 1 and I-287 supplies office conversions and flex space, South Jersey trades with the Philadelphia market, and the Jersey Shore holds the vacation rentals and small multifamily that many local exchangers use as replacement property.
The federal rules behind every New Jersey exchange
You identify replacement property in writing within 45 days of the sale and close within 180 days. A qualified intermediary holds the proceeds the whole time; touching them ends the exchange. To defer all of the tax, buy property of equal or greater value and replace the debt you paid off. Our 1031 exchange guides explain each rule, the 45-day identification validator checks your list, and the partial exchange calculator shows the cost of a trade-down.
New Jersey 1031 mistakes to avoid
- Not checking the Section 1031 box on GIT/REP-3, so a nonresident has 10.75% of the gain or 2% of the price withheld.
- Pricing a sale over $1 million without the graduated percent fee, which the seller now pays, and coming up short on the replacement.
- Assuming an apartment building and a retail building at the same price owe the same transfer charges. The property class decides whether the graduated fee applies.
- Underwriting a New Jersey replacement property on last year's tax bill in a town with a revaluation coming.
- Using the federal gain figure on the New Jersey return when state basis differs, especially for partnership property.
- Moving out of state and expecting the New Jersey tax to disappear on a property you sell afterward without exchanging.
Start your New Jersey 1031 exchange
Engage us before the relinquished property closes. We prepare the exchange agreement, assignment and notices for your closing attorney, support the GIT/REP-3 exemption, hold proceeds in a segregated account under the 1031 Specialists Standard, and calendar both deadlines. Start your exchange, book an intro call, or call (631) 438-1031.
Frequently asked questions
How can I avoid capital gains tax on real estate in New Jersey?
Use a 1031 exchange: sell through a qualified intermediary and buy like-kind real property of equal or greater value within 180 days. That defers the federal tax and New Jersey's gross income tax of up to 10.75%. Holding the replacement property until death gives heirs a stepped-up basis.
What is the New Jersey capital gains tax rate on real estate?
New Jersey taxes the gain as ordinary income under its gross income tax. The top rate is 10.75% on taxable income over $1 million. There is no lower rate for long-term gains.
What is the New Jersey exit tax and does a 1031 avoid it?
It is an estimated income tax payment collected at closing from nonresident sellers: the greater of 10.75% of the gain or 2% of the price, on Form GIT/REP-1. In a full 1031 exchange, the seller certifies on GIT/REP-3 that the gain is not recognized under Section 1031, and no payment is collected.
Who pays the New Jersey mansion tax now?
The seller. Since July 10, 2025, the graduated percent fee of 1% to 3.5% on sales over $1 million of residential and most commercial property is paid by the seller, not the buyer. A 1031 exchange does not defer it.
Does the New Jersey mansion tax apply to commercial property?
It applies to Class 4A commercial property sold for more than $1 million, but not to industrial property or apartment buildings. Residential property, farms with a residence and co-op units are also covered.
Does New Jersey recognize 1031 exchanges?
Yes. Gain deferred for federal purposes is also deferred for New Jersey gross income tax, with no separate tracking form. New Jersey taxes the deferred gain if you are a resident when you later sell in a taxable sale.
Sources
- NJ Division of Taxation: Realty Transfer Fee and Graduated Percent Fee
- NJ Form GIT/REP-3, Seller's Residency Certification/Exemption
- NJ Form GIT/REP-1, Nonresident Seller's Tax Declaration
- NJ Division of Taxation: Real property transfer taxes overview
- NJ Legislature: Assembly Bill 10 (2020), 10.75% rate over $1 million
Related: New York, Pennsylvania, Delaware, Florida and all 50 states.
This page is general information, not tax or legal advice. 1031 Specialists acts as a qualified intermediary. New Jersey fees and rates change, so confirm current figures with your CPA or closing attorney.
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