The purpose of the NJ real estate transfer fee is to offset costs related to tracking and cataloging the state’s real estate deals each year. It’s also a big moneymaker for the state. Since this fee is a huge part of making property transfers in the state of New Jersey, it’s imperative for anyone planning to buy or sell a house to know what it is, how to calculate it, and who has to pay it.
Table of Contents
What Is the NJ Realty Transfer Fee (Tax)?
Who Pays the NJ Real Estate Transfer Tax?
How To Calculate the NJ Realty Transfer Fee
Exemptions To the NJ Realty Transfer Fee
NJ Realty Transfer Fee & the Mansion Tax
NJ Realty Transfer Fee Bottom Line
What Is the NJ Realty Transfer Fee (Tax)?
The New Jersey Realty Transfer Fee is a transfer tax that is paid when the title of a property in NJ changes hands. It is calculated, paid, and recorded at the same time that the deed is recorded and is typically between 0.4% to 1% of the transaction’s value. For homes that sell for under $150,000 the NJ transfer tax is only 0.4%, but for homes above $1 million, it is around 1%, depending on the exact sale price.
The amount paid depends on the value of the property whose titles are being transferred. Sometimes, the amount can be changed if the director’s ratio (this is the difference between the market value vs assessed value of property in a New Jersey district, determined by the Division of Taxation) differs significantly from the purchase being conveyed. This is simply to prevent transactions that purposely avoid the NJ Realty Transfer Tax by selling property cheaply on paper (thus, paying less in fees) and compensating the seller at a later time.
The director’s ratio exists so that the realty transfer fee will always represent the true value of the transaction. All twenty-one New Jersey counties share the same rules and procedures for the realty transfer fee.
The money collected for the transfer tax is deposited with the state treasurer ten days after it is received.
Who Pays the NJ Real Estate Transfer Tax?
The NJ real estate transfer tax is payable by the buyer upon transfer of the deed. It applies to Class 4A commercial properties, Class 2 residential properties, and Class 3A farm properties, with certain exceptions. Knowing the differences will help you understand if your purchase applies and whether you should prepare to pay the NJ realty transfer fee.
Class 2 residential properties refer to land that has a house on it. It can be designed for function or enjoyment, but homes of all sizes fall into this category and are subject to the NJ realty transfer fee upon transfer of the deed. This means that apartment complexes that fit more than four families are exempt from the tax (they are classified as 4C). Residential condominiums, however, have to pay it.
Class 4A commercial properties are any that produce an income directly off of the land. They are also subject to the realty transfer tax. This includes any establishment with customers or services, including malls, offices, restaurants, stores, and theaters. Industrial complexes and facilities may not be taxed if the property itself doesn’t pull in an income even if a profit-making organization owns them.
Finally, Class 3A farming properties have to pay the transfer fee, but some exemptions apply. For example, functional farmland can be purchased without any structures or buildings on the property. In that case, the land would not be subject to the tax.
How To Calculate the NJ Realty Transfer Fee
To determine the transfer fee, calculate 1% of the total value of the consideration. Add another 1% to transactions worth more than $1 million. Visit an official county recording portal to determine the total amount of the transfer fee(s) based on the value of your transaction.
Exemptions To the NJ Realty Transfer Fee
1. Transactions Under $100
If the consideration is valued at less than $100, the NJ Realty Transfer fee will not apply. However, this exemption isn't all that useful as most real estate transactions will have a much higher dollar value.
2. Government Agencies and Institutions
It also does not apply to transactions made by or for federal agencies acting within the state of New Jersey, including institutions, agencies, the government itself, or any established subdivision of those authorities.
3. Debt Release Transfers
If the transaction is determined to be a debt release transfer, the tax will not be required. This also applies to transfers made in accordance with a will or in releasing a right of reversion.
4. Exemptions for Co-ops
Cooperative corporations may also be moving assets, converting spaces into condominiums, or consolidating a shareholder’s interests after they surrender them. In each of these cases, the NJ realty transfer fee will not be applied.
NJ Realty Transfer Fee & the Mansion Tax
The NJ mansion tax is a fee that applies to transfers of deeds in New Jersey on Class 2 residential and Class 4A commercial properties above $1 million. It is equal to 1% of the total sale, with some exceptions. It is due at the time of the deed transfer.
Properties that are exempt from the realty transfer fee for the reasons mentioned also automatically become exempt from the New Jersey mansion tax.
As a result, qualification for the tax can cost or save a purchaser tens of thousands of dollars, meaning it’s well worth it to use this guide to determine if your property will be subject to the realty transfer fee, which can determine other taxation as well.
This could hinder or accelerate a sale, depending on how the numbers add up.
NJ Realty Transfer Fee Bottom Line
The New Jersey Realty Transfer Fee or RTF can significantly affect the cost of a transaction, which affects its value. Most residential and commercial properties have to pay this fee, issuable to the state recorder upon receipt of the transfer of deeds (with a waiting period of ten days). However, some properties, such as apartment complexes, vacant plots, and farmland with no residential structures, can be exempt from the fee.
Knowing the exemptions will allow you to better plan your contracts and deals when it comes to buying or selling property in New Jersey. Finding an exception can save the buyer tens of thousands of dollars, which can greatly affect the pacing of a big land deal.
Exemption from it will also save you the mansion tax, so it’s worth it to figure out whether your purchase applies to the NJ realty transfer fee, as well as how much it’s going to cost.