The short answer
A nonresident who sells New Jersey real estate in a 1031 exchange avoids the so-called exit tax, the estimated Gross Income Tax payment otherwise due before the deed can be recorded, by checking box 7a on Form GIT/REP-3 and showing the value of the like-kind property received. New Jersey does not tax gain that federal law leaves unrecognized, but it taxes any recognized gain as ordinary income at rates up to 10.75%. Two seller-side costs remain in every exchange: the Realty Transfer Fee and, above $1 million, the graduated fee of 1% to 3.5% that shifted to sellers on July 10, 2025.
New Jersey at a glance
| State tax on real estate gains | Ordinary income rates 1.4% to 10.75%; 10.75% applies above $1,000,000 of taxable income |
|---|---|
| Exit-tax prepayment | Nonresidents: greater of 10.75% of federal gain or 2% of consideration, before recording |
| Exchange exemption | GIT/REP-3 box 7a or 7b; show the value of like-kind property received |
| Partial exchange | GIT/REP-1 with 2% of the boot at recording, or NJ-1040-ES after recording |
| Realty Transfer Fee (seller) | Up to $6.05 per $500 on consideration over $1,000,000 for sales above $350,000 |
| Mansion tax since July 10, 2025 | Seller pays 1% to 3.5% of the whole price on covered sales over $1 million |
| Deferred-gain claw-back | None published; New Jersey does not follow deferred gain to another state |
The exit tax is an estimated payment, and GIT/REP-3 box 7a is how an exchange seller skips it
Under N.J.S.A. 54A:8-8 through 8-10, a nonresident individual, estate or trust selling New Jersey real property must make an estimated Gross Income Tax payment before the deed is recorded, whether or not there is a gain. The amount is the federal reportable gain multiplied by the highest rate in N.J.S.A. 54A:2-1, currently 10.75%, and never less than 2% of the consideration stated in the deed.
County recording officers cannot accept a deed without the right GIT/REP form and any payment due. A seller with an exemption files GIT/REP-3, Seller's Residency Certification/Exemption; box 7a covers gain not recognized under IRC section 721, 1031 or 1033 (you circle 1031), and box 7b states that the seller received only like-kind property.
The form requires the value of the like-kind property received and carries an acknowledgment that if section 1031 does not ultimately apply, the seller will file a New Jersey return for the year of sale and report the recognized gain. New Jersey residents check box 1 instead and settle any tax on the NJ-1040.
- GIT/REP-1 is the nonresident declaration filed with the payment; GIT/REP-2 is the Division's raised-seal receipt for a prepayment made at a Regional Information Center.
- GIT/REP-4 is a waiver for situations the GIT/REP-3 boxes do not cover, such as a capital loss; it must be requested before recording.
- Technical Bulletin TB-57(R), revised June 15, 2026, is the Division of Taxation's current guidance on all of these forms.
Boot, partial exchanges and a collapsed exchange under the GIT/REP rules
If the exchange is only partly like-kind, the seller has two options. File a GIT/REP-1 alongside the GIT/REP-3 showing the greater of the consideration or the fair market value of the non-like-kind property and remit 2% of that nonexempt amount at recording, or record with the GIT/REP-3 alone and make an estimated payment on Form NJ-1040-ES afterward.
Under the first option, the exempt and nonexempt consideration on the GIT/REP-3 and GIT/REP-1 must add up to the consideration on the RTF-1 affidavit. If a deferred exchange is later voided, the qualified intermediary must complete a GIT/REP-1 and remit 2% of the total consideration with an NJ-1040-ES voucher.
Any excess payment comes back either on the year-end NJ-1040NR or sooner on Form A-3128, Claim for Refund of the Estimated Gross Income Tax Payment for the Sale of New Jersey Real Estate. The Division notes that A-3128 is the faster route for sales early in the year.
New Jersey taxes recognized gain as ordinary income, and the New Jersey basis can differ from federal
New Jersey has no capital gains rate. For 2025 returns the schedule runs from 1.4% on the first $20,000 to 6.37% between $75,000 and $500,000 for a single filer ($150,000 to $500,000 joint), 8.97% up to $1,000,000, and 10.75% above $1,000,000; a recognized gain stacks on top of other income in that schedule.
Gain is reported on Schedule NJ-DOP. The NJ-1040 instructions say a sale of rental property may require a New Jersey adjusted basis, and a depreciation adjustment on worksheet GIT-DEP is required where federal bonus depreciation or section 179 expense was deducted for assets placed in service on or after January 1, 2004. Your New Jersey deferred gain can therefore differ from the federal figure on Form 8824.
A net loss on Schedule NJ-DOP produces no entry on the return, so disposition losses do not shelter wages or rental income. Track the New Jersey basis of the relinquished property now; it determines the state gain when the replacement property or DST is eventually sold.
Seller-side transfer costs: the Realty Transfer Fee and the graduated mansion tax that moved to sellers in 2025
The Realty Transfer Fee is paid by the grantor at recording, and an exchange is not an exemption. For consideration above $350,000 the rate is $2.90 per $500 on the first $150,000, $4.25 to $200,000, $4.80 to $550,000, $5.30 to $850,000, $5.80 to $1,000,000 and $6.05 per $500 above $1,000,000; Class 4A commercial sales must attach the RTF-1 affidavit with its equalized valuation calculation.
P.L. 2025, c.69, signed June 30, 2025 with the fiscal 2026 budget, replaced the buyer's 1% mansion tax with a graduated percent fee on the seller for transactions on or after July 10, 2025: 1% over $1,000,000, 2% over $2,000,000, 2.5% over $2,500,000, 3% over $3,000,000 and 3.5% over $3,500,000, applied to the entire price.
It covers Class 2 residential, Class 3A farm property with a residence, Class 4A commercial and Class 4C cooperative units. Contracts fully executed before July 10, 2025 and recorded by November 15, 2025 could reclaim any amount above 1% within a year of recording, and the Controlling Interest Transfer Tax on the sale of an entity owning Class 4A property valued over $1,000,000 is likewise imposed on the seller.
- A $2,400,000 Class 4A office sale: a Realty Transfer Fee of about $26,500 plus a $48,000 graduated fee, both from the seller's proceeds.
- Those fees reduce the exchange proceeds your qualified intermediary receives and the value you need to replace.
After closing, New Jersey publishes no claw-back on deferred gain
Nothing in New Jersey's Gross Income Tax rules chases deferred gain once the replacement property sits outside the state. A nonresident who completes the exchange has no further New Jersey obligation on that gain unless the exchange fails or boot is recognized, which is exactly the contingency the GIT/REP-3 acknowledgment covers.
A New Jersey resident continues to report all income, including DST income from other states, and claims a credit for taxes paid to other jurisdictions on Schedule NJ-COJ of the NJ-1040.
Replacement property
Exchanging New Jersey property into a DST: GIT/REP-3 at the closing table, then income sourced state by state
A DST interest is like-kind replacement property, so a New Jersey seller can check boxes 7a and 7b on GIT/REP-3 and enter the value of the DST interest received, avoiding the 10.75%-of-gain or 2%-of-price prepayment. If part of the proceeds stay in cash, the boot procedure above applies to that portion.
Once inside a traditional DST, the trust's rental income is generally taxable first in whichever states hold the buildings. A resident reports it on the NJ-1040 with a Schedule NJ-COJ credit for tax paid to those states; a former resident who has left New Jersey owes New Jersey nothing on out-of-state DST income.
Because New Jersey's top rate is 10.75%, the credit is often smaller than the New Jersey tax on the same income, so a resident should expect some New Jersey tax on DST distributions. Compare the cash-out DST route and the New Jersey basis question with your CPA, and confirm form mechanics with the Division of Taxation's GIT/REP Unit.
Questions investors ask about 1031 exchanges in New Jersey
Is the New Jersey exit tax a separate tax that a 1031 exchange makes me forfeit?
No. It is an estimated income tax payment credited on your NJ-1040NR, and a full like-kind exchange is exempt from it under GIT/REP-3 box 7a.
What goes on the GIT/REP-3 if my exchange has $100,000 of cash boot?
Check box 7a with the like-kind value, then either file a GIT/REP-1 with 2% of the $100,000 at recording or pay the estimate on NJ-1040-ES after recording; the two consideration figures must total the RTF-1 amount.
My exchange collapsed after the sale closed; what does the qualified intermediary have to file?
TB-57(R) requires the intermediary to complete a GIT/REP-1 and remit 2% of the total consideration with an NJ-1040-ES voucher, and you report the recognized gain on your New Jersey return for the year of sale.
Who pays the mansion tax on a $2,400,000 commercial sale that is part of an exchange?
The seller, at 2% of the full price, or $48,000, for any transaction entered into on or after July 10, 2025, on top of the Realty Transfer Fee; the exchange provides no exemption.
Does New Jersey give my recognized gain a lower capital gains rate?
No. Recognized gain is ordinary income on Schedule NJ-DOP at rates up to 10.75%, computed on the New Jersey adjusted basis rather than the federal one where depreciation rules differ.
As a New Jersey resident, do I get credit for taxes a DST's state charges me?
Generally yes, on Schedule NJ-COJ, limited to the New Jersey tax on that same income; the difference between the other state's rate and New Jersey's remains payable to New Jersey.
Sources
The rules above were checked against these publications on September 18, 2026. Rates and forms change; confirm the current version with your CPA and the New Jersey tax agency before you close. This page is general information, not tax or legal advice.
- NJ Division of Taxation, TB-57(R) Estimated Gross Income Tax Payment Requirements on Sales of New Jersey Real Property by Nonresidents (rev. June 15, 2026)
- NJ Division of Taxation, Form GIT/REP-3 Seller's Residency Certification/Exemption (8-25)
- NJ Division of Taxation, 2025 Form NJ-1040 Instructions (tax rate schedules, Schedule NJ-DOP, Schedule NJ-COJ)
- NJ Division of Taxation, Form RTF-1 Affidavit of Consideration for Use by Seller and instructions
- NJ Division of Taxation, Realty Transfer Fee schedule for consideration in excess of $350,000
- NJ Division of Taxation, Controlling Interest Transfer Tax
- Morgan Lewis, New Jersey Mansion Tax Changes Impose Higher Transaction Costs (July 2025)
- Kulzer & DiPadova, New Jersey Increases Mansion Tax and Controlling Interest Transfer Tax