F or the second time in as many years, the per thousand of - PDF document

G Real Estate Alert July 2004 Effective August 1, 2004 New Laws Will Increase Realty Transfer Fees and Require Withholding of Gross Income Tax for Non-Resident Taxpayers By Noel M. Spear, Esq. F or the second time in as many years, the per thousand of consideration), plus an additional New Jersey Legislature has increased the fee ($1.50 per thousand over $150,000). The law Realty Transfer Fees payable on certain that went into effect on July 15, 2003 added a transfers of real property. These increases will take supplemental fee of $.50 per thousand for the first effect on August 1, 2004 and consist of: $150,000; $1.70 per thousand for $150,000 to (i) a substantial increase in fees for $200,000 and $2.80 per thousand thereafter. That transfers of real property valued at more increase has not been changed and remains in than $350,000, effect. (ii) a “mansion” tax to be paid by the buyer The new law adds a new component to the of residential real property valued at Realty Transfer Fee, called a “general purpose fee,” more than $1,000,000 in the amount of which only applies to transfers made for more than 1% of the entire purchase price, and $350,000. The general purpose fee ranges from (iii) withholding of gross income tax on $1.80 to $4.30 per thousand, depending on the capital gains for sellers of New Jersey amount of consideration, and is calculated from the property who are not New Jersey first dollar. The general purpose fee is in addition residents. to the basic, additional and supplemental fees The revenue generated by these increased fees described above. will be used for general State purposes. The following chart may be used to determine the standard realty transfer fee for consideration of New Fee For Transfers In Excess Of $350,000 less than $350,000: Prior to July 15, 2003, the Realty Transfer Fee contained two components: the basic fee ($3.50 This document is published by Lowenstein Sandler PC to keep clients and friends informed about current issues. It is intended to provide general information only. L Roseland, New Jersey Telephone 973.597.2500 65 Livingston Avenue www.lowenstein.com 07068-1791 Fax 973.597.2400

G Amount of Consideration Fee per $1000 From To 0 150,000 $4.00 150,001 200,000 $6.70 200,001 350,000 $7.80 If the deed consideration is over $350,000, the following chart (which includes the new general purpose fee) may be used: Amount of Consideration Fee per $1000 From To 0 150,000 $5.80 150,001 200,000 $8.50 200,001 550,000 $9.60 550,001 850,000 $10.60 850,001 1,000,000 $11.60 OVER one million $12.10 Mansion Tax A partial exemption against the Basic Fee remains in effect for a one or two family residence, In addition to the increased Realty Transfer Fee owned and occupied by a senior citizen (over age described above, as of August 1, 2004, the buyer of 62), or blind or disabled person or for the sale of a residential property for consideration in excess of low and moderate income housing. $1,000,000 must pay a fee of one percent (1%) of the entire purchase price. Note that this fee applies Note that the law only states that the county to transfers of land, which is “zoned for residential recording officer must collect the Realty Transfer use,” regardless of whether a house or other Fee when the deed is submitted for recording. The improvements have been constructed thereon. law does not specify which party must pay the Realty Transfer Fee at the closing. The Realty Withholding Of Gross Income Tax For Transfer Fee has been customarily paid by the seller Non-Resident Taxpayers and we expect that custom to continue, including Nonresident taxpayers will be required to pay the recent increases, although sellers may insist estimated gross income taxes on the capital gains that the sales price may be increased by some realized on the sale of any real property in New amount to offset this impact. Jersey after August 1, 2004. This requirement

G applies to non-resident individuals, estates and c. if the seller is an agency of the United trusts. Note that even if the seller is a resident of States, State of New Jersey, Federal New Jersey, a form certifying that the sale is not National Mortgage Association, the subject to the requirement to pay the gross income Federal Home Loan Mortgage tax must be included when submitting the deed for Corporation, the Government National recording. Mortgage Association or a private mortgage insurance company. The amount of gain is computed based on federal income tax criteria, but may not be less Conclusion than 2% of the consideration stated in the deed. The recent amendments to the Realty Transfer The non-resident taxpayer must estimate the Fee statute represent a significant increase in amount of gross income tax due using an estimated transaction costs for sale of New Jersey real estate. tax rate that is equal to the highest rate of tax for Strong market conditions, due in large part to the taxable year. The estimated tax form must be historically low interest rates and the availability of completed whether there is a gain or loss on the capital, should mitigate the initial impact of these sale of the property. fees. In any case, we expect to close an unusually The only exceptions to the requirement of high number of transactions during the month of payment of estimated gross income taxes by non- July as our clients accelerate their closings in order resident individuals, trusts and estates are as follows: to avoid these new fees. a. if the real property being sold is used For more information and counseling as to what exclusively as the principal residence of appropriate steps your company should take at this the seller; time, please contact Noel M. Spear at 973.597.2330 b. if the transfer is a deed in lieu of or nspear@lowenstein.com. foreclosure or by a deed in satisfaction of a foreclosure proceeding with no additional consideration; and