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Real estate in Florida subject to NJ estate tax?

Paterson, NJ |

I am a New Jersey resident and own real estate in New Jersey and Florida. At my passing, will my real estate in New Jersey and Florida be subject to the New Jersey or Florida estate taxes? If the Florida real estate is subject to the Florida estate taxes, doesn’t that mean it is estate tax free since there is currently no estate tax in Florida?

Attorney Answers 4

Posted

The short answer is yes because ownership of foreign real estate can increase your overall New Jersey estate tax. New Jersey has a complicated formula that does include real estate assets worldwide for purposes of the estate tax, but it only taxes a fractional percentage. The formula basically asks what percentage of assets are based in New Jersey and divides that by your assets worldwide.

Let me give you an example. If you have NJ real estate of $200,000, Cash of $400,000 and Florida real estate of $100,000, then the total estate is $700,000. New Jersey has an estate tax exemption of $675,000. The statute doesn't exempt the $100,000 property, so you are over the NJ limit by $25,000.

To calculate the New Jersey estate tax you have to divide the NJ based assets versus worldwide assets (i.e. 6/7 in the above example). So you do get a break in one sense.

If you were a Florida resident, then there would not be any tax as Florida does not have an estate tax. Hope this helps

Kevin A. Pollock, J.D., LL.M.
Law Office of Kevin A. Pollock LLC
112 W. Franklin Ave.
Pennington, NJ 08534
P: (609) 818-1555
Licensed to practice law in Florida, New Jersey, New York and Pennsylvania.

-------------------------------------------------------------------------- The foregoing is offered for informational purposes only and is not legal advice nor does it create an attorney-client relationship. To indicate that you have read the answer it would be appreciated if you would check either the thumbs up or thumbs down box below. Circular 230 Disclosure: Any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

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Asker

Posted

In what way does the Florida residence increase the total estate tax? After multiplying the 6/7 fraction by $700,000, the value of the estate drops back down to $600,000. So in a sense the $100,000 Florida residence has no impact on the New Jersey estate tax.

Kevin Andrew Pollock

Kevin Andrew Pollock

Posted

Asker, that is incorrect. NJ acts as if your estate is $700,000 for NJ estate tax purposes, and then instead of taxing the overage ($25,000) at 100%, it taxes it by 6/7. Hope you see the difference.

Asker

Posted

Whereas if NJ did not count the Florida property for the purpose of the NJ estate tax, no estate tax would be owed because the total estate would be $600,000, which is under NJ's $675,000 threshold? So the real estate, while out of state and not taxed at 100%, still pushes the estate over the threshold and subjects it to an estate tax?

Posted

If you are referring to estate tax, as such, then I agree with you regarding no estate tax in Florida. Your non-NJ assets should be taxed, (if at all), in the state(s) where they are located. Of course, there may be non-real estate assets would be taxed according to your state of residence.

James Frederick

***Please be sure to mark if you find the answer "helpful" or a "best" answer. Thank you! I hope this helps. ***************************************** LEGAL DISCLAIMER I am licensed to practice law in the State of Michigan and have offices in Wayne and Ingham Counties. My practice is focused in the areas of estate planning and probate administration. I am ethically required to state that the above answer does not create an attorney/client relationship. These responses should be considered general legal education and are intended to provide general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state. If I refer to your state's laws, you should not rely on what I say; I just did a quick Internet search and found something that looked relevant that I hoped you would find helpful. You should verify and confirm any information provided with an attorney licensed in your state. I hope you our answer helpful!

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Posted

If you are a NJ resident and own real estate in FL it is included in the NJ estate tax calculation:

See. NJAC § 18:26-3A.3 Simplified tax system

This is because the NJ estate tax is based on the federal estate tax system (as of 2001). and the federal system includes all assets.

There are some peculiarities for sure but if you are a NJ resident they will probably get it. This is one reason why NJ is an expensive place to die and FL is better for estate taxes.

This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature. Visit Steve Zelinger's website: http://www.stevenzelinger.com/

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Lawrence A Friedman

Lawrence A Friedman

Posted

As Steve says it's included in the calculation but NJ doesn't actually tax out of state real estate.

James P. Frederick

James P. Frederick

Posted

So does this give Asker and people in like situations financial incentive to become Florida residents?

Asker

Posted

So to confirm: I do not have to worry about paying New Jersey estate tax on the value of the Florida residence, even though that value is included in the calculation?

Posted

Out of state real estate may not be taxed by NJ. However, NJ can include the value of the out of state real estate to determine the NJ estate tax rate.

Lawrence Friedman, Bridgewater, NJ. Certified as an Elder Law Attorney by the ABA approved National Elder Law Foundation, former Chair NJ State Bar Association Elder and Disabilities Law Section, Member Board of Consultors of NJSBA Real Property, Trusts & Estates Law Section, Vice Chair Special Needs Law Section of National Academy of Elder Law Attorneys, and Master of Laws (LL.M.) in Taxation from N.Y.U. School of Law. Visit SpecialNeedsNJ.com for articles and Q&A on elder law, special needs, wills, trusts, estates, and tax. Visit SpecialNeedsNJ.com/blog and subscribe for free timely updates to be delivered to your inbox. Information on both Avvo and SpecialNeedsNJ.com does not constitute legal advice, as it is general in nature and may not apply to your situation or be subject to important changes. No attorney client relationship exists unless set forth in written engagement terms.

Lawrence Friedman, Bridgewater, NJ. Certified as an Elder Law Attorney by the ABA approved National Elder Law Foundation, former Chair NJ State Bar Association Elder and Disabilities Law Section, Member Board of Consultors of NJSBA Real Property, Trusts & Estates Law Section, Vice Chair Special Needs Law Section of National Academy of Elder Law Attorneys, and Master of Laws (LL.M.) in Taxation from N.Y.U. School of Law. Visit SpecialNeedsNJ.com for articles and Q&A on elder law, special needs, wills, trusts, estates, and tax. Visit SpecialNeedsNJ.com/blog and subscribe for free timely updates to be delivered to your inbox. Information on both Avvo and SpecialNeedsNJ.com does not constitute legal advice, as it is general in nature and may not apply to your situation or be subject to important changes. No attorney client relationship exists unless set forth in written engagement terms.

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Asker

Posted

I understand that the value of the Florida real estate is included in the calculation of the NJ estate tax, but is not actually taxed when the estate of a NJ resident is taxed under the estate tax. What about the other way around? Suppose a Florida resident owns property in NJ. When that Florida resident dies, does he have to pay any estate taxes on the NJ property? My guess is that since he is not a NJ resident, he should not have to pay the NJ estate tax on his NJ property. Since Florida has no estate tax, he should not have to pay an estate tax on his Florida property either.

Asker

Posted

Would you kindly check Kevin Pollock's comment above? It appears to be inconsistent with your statement that out of state real estate may not be taxed by NJ. Mr Pollock states that NJ acts as if your estate includes the value of the Florida property for NJ estate tax purposes, and then instead of taxing the overage, it taxes it by a fraction 6/7. In other words, while NJ does not tax the out of state real estate by 100%, it is still taxing it by a percentage.

Lawrence A Friedman

Lawrence A Friedman

Posted

No NJ does not tax out of state RE. NJ includes the RE in the gross estate to determine the tentative NJ estate tax. NJ than reduces that estate tax by the pro rata share represented by out of state RE so if NJ assets are 90% of the gross estate, then the NJ estate tax is 90% of the tax on the gross estate. The effect is no tax on the out of state property but a higher overall estate tax rate than if the out of state property were ignored.

Asker

Posted

Yes but I think it can be said that NJ is taxing the out-of-state property. Suppose you have $600,000 in NJ assets. You would owe no NJ estate tax, because you are below the $675,000 threshold. Now suppose you have $600,000 NJ assets and $100,000 Florida assets for a total of $700,000. The $25,000 above the $675,000 threshold is taxable. Although it is taxable at 6/7 rather than at 100% of the NJ estate tax rate, it is still taxed. Similarly, suppose a NJ resident owned $675,000 in NJ real estate and $675,000 in foreign (non-NJ property). If we were to say that NJ does not tax out-of-state property, then the effect of this would be that no estate tax would be owed, since the total of the NJ property does not exceed the NJ estate tax threshold. However, an estate tax is owed on the $675,000 in out-of-state property. While this property is not taxed at 100%, it is still taxed at a 1/2 fraction, since the NJ property only accounts for one half of the total property. In my view, this means that the out-of-state property is taxed.

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