Most Princeton homeowners who have lived in their house for years will owe little or no capital gains tax when they sell, because federal and New Jersey law both let you exclude a large part of the gain on your main home.
Here's how it works in practice:
The exclusion is $250,000 of gain for a single filer and $500,000 for a married couple filing jointly. Gain is roughly your sale price minus what you paid, minus the cost of capital improvements and selling expenses.
You have to pass two tests. You must have owned the home and lived in it as your main residence for at least two of the five years before the sale.
New Jersey follows the federal rule. The state's regulation ties its exclusion to IRS Section 121 and uses the same amounts and the same two-of-five-year tests, so you aren't hit with a separate state bill on gain that's excluded federally.
Keep your improvement records. A new roof, a kitchen renovation or an addition raises your cost basis and lowers your gain. Long-time Princeton owners who bought decades ago are the ones most likely to go over the exclusion, and receipts matter.
Moving out of state? New Jersey may collect an estimated payment at closing, often called the "exit tax." It isn't a new tax. It's a prepayment of income tax, and if it's more than you owe, you get the difference back when you file.
Talk to your CPA before you list. Every situation is different, especially with a surviving spouse, a home held in a trust or a rental history.
Fred Gomberg is a Seniors Real Estate Specialist (SRES®) with Berkshire Hathaway HomeServices Fox & Roach in Princeton who helps downsizers plan the sale with their tax and legal advisors at the table. If you'd like to talk through your timing and what your home might sell for, Fred is happy to have a no-pressure conversation whenever you're ready.
