New Jersey Homeowners Face a Hidden Tax Trap When Selling: Is Your Equity at Risk in 2025?
New Jersey homeowners, a crucial revelation has emerged that could significantly impact your next home sale: a substantial percentage of you are sitting on “hidden” home equity that could trigger an unexpected tax bill.
According to a recent analysis by the National Association of Realtors® (NAR), a staggering 46.2% of homeowners in New Jersey now hold more home equity than the IRS allows to be excluded from capital gains taxes. Even more concerning, 12.7% exceed the $500,000 threshold for joint filers, putting them squarely in the crosshairs of a significant tax liability.
The Root of the Problem: An Outdated Exclusion
This looming issue stems from a policy established nearly three decades ago. In 1997, the capital gains exclusion for primary residences was set at $250,000 for individual filers and $500,000 for married couples. The critical flaw? These figures have remained unchanged since, while nationwide home prices have surged by over 260% in the same period. This disconnect has left millions of homeowners vulnerable to unexpected tax burdens upon selling their long-held properties.
New Jersey’s Added Pressure: High State Capital Gains Taxes
Compounding the federal capital gains issue, New Jersey levies its own capital gains tax, treating it as ordinary income. With rates that can reach as high as 10.75%, New Jersey’s capital gains tax is among the highest in the nation. For long-time homeowners looking to sell in today’s booming market, the combined bite of federal and state taxes could significantly diminish their hard-earned proceeds.
The “Stay-Put Penalty” Affects the Northeast
This unforeseen tax exposure is creating a phenomenon economists are calling the “stay-put penalty.” Many homeowners, particularly those who have owned their properties for decades and seen substantial appreciation, are hesitant to downsize or relocate to avoid triggering these substantial tax bills. This reluctance keeps valuable housing inventory off the market, further tightening supply in an already competitive environment.
New Jersey’s high-demand areas, especially the vibrant suburbs of New York City and Philadelphia like Montclair, Maplewood, and Westfield, are particularly susceptible. Even what might be considered “modest” homes in these communities have appreciated to a point where they now easily exceed the federal exemption limits.
This vital information was brought to light by The Realtor.com Team, as originally published on Realtor.com and also reported on SFGate.com.
For homeowners in New Jersey facing this complex situation, understanding your equity, assessing your potential tax risk, and consulting with a professional before listing your home is more critical than ever.
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News Source – https://www.sfgate.com/
