Selling Real Property from an Estate
Category: Probate and Estate Administration
A client recently called me under the misconception that she could not sell her deceased sister's condominium until that estate was finalized and all taxes were paid. She had found a buyer for the real estate and wanted to sell it as soon as possible.
Where an estate owns real property, the State of New Jersey has a lien on that property for any potentially unpaid inheritance or estate taxes. This lien may be removed by the issuance of Real Property Tax Waiver by the State, which is then filed by the County Clerk in county in which the property is located.
A Real Property Tax Waiver can be issued by one of two ways:
1 - If (a) all the estate beneficiaries are Class A (lineal ascendant and descendants, and your spouse), and (b) no New Jersey Estate Tax is due, then a Form L-9 can be filed affirming to the New Jersey Inheritance Tax Division that no tax is due. Upon processing, and Real Property Tax Waiver will be issued to be filed with the County Clerk.
2 - If an Inheritance Tax or Estate Tax is due, then the Real Property Tax Waivers will be issued together with a letter from New Jersey that it has accepted as correct all Inheritance and Estate Tax returns filed and payments made. This normally takes well over a year from the date of death, due to the time necessary to prepare and file the returns, and then have them reviewed by New Jersey.
What happens if there is a tax due and you want to sell the property before the Real Property Tax Waiver has been issued? As a practical matter, the buyer's title company will require that some percentage of the sale proceeds be held in escrow until the Real Property Tax Waiver has been issued. This does not prevent the sale, but instead creates a fund from which to pay the taxes. The escrow can be released either (1) to New Jersey or the IRS to pay taxes due, or (2) upon presentation of Real Property Tax Waiver.