A capital gain is the profit you realize when you sell or exchange property such as real estate or shares of stock. If you are a New Jersey resident, all of your capital gains, except gains from the sale of exempt obligations, are subject to this State's income tax.
Use Schedule B of the New Jersey resident income tax return to list your gain or loss from transactions involving the sale or exchange of property. The amount of gain or loss from each transaction is computed by deducting from the selling price your cost or adjusted basis in the property sold, including any expenses that you incurred in making the sale. Use the same cost or basis that you used for Federal income tax purposes.
New Jersey income tax law has uncoupled from certain changes in Federal depreciation and expense deduction limits. A New Jersey depreciation adjustment may be required for assets placed in service on or after January 1, 2004. You must complete the Gross Income Tax Depreciation Adjustment Worksheet GIT-DEP
to calculate the adjustments required to determine income reportable in the various net income categories. In addition, for taxable years beginning after December 31, 2004, New Jersey income tax law has uncoupled from many provisions of IRC Section 199. The New Jersey domestic production activities deduction must be taken into consideration in calculating the gain or loss from disposition of property. Complete Form 501-GIT
to calculate the allowable deduction.
If you sold an interest in a partnership, a sole proprietorship, or rental property, you may be required to use a New Jersey adjusted basis. If you sold shares in an S corporation, you must use your New Jersey adjusted basis.
Gains or losses realized from the sale or exchange of exempt obligations such as United States Treasury bonds are not taxable, nor are capital gains distributions from a qualified investment fund attributable to exempt obligations. Gains and losses from nontaxable transactions like these should not be included on Schedule B.
Capital gains and losses must be reported in the year they are realized. Gains from installment sales must be reported in the same year that you report them on your Federal return. New Jersey does not differentiate between short-term and long-term capital gains.
Losses from the sale or exchange of property may only be used to offset gains from other sales or exchanges of property in the same tax year. New Jersey law makes no distinction between active and passive losses, nor does it allow you to carry losses forward or back to other tax years. Federal passive losses may be deducted in full in the year incurred from any gain in the same category of income, provided the gain occurred within the same year.
Your net gain or loss is determined on Schedule B by subtracting total losses from total capital gains. If this amount is zero or less, make no entry on the line for "Net Gains or Income From Disposition of Property" on your New Jersey income tax return.
For additional information, refer to the section on Net Gains or Income From Disposition of Property in the New Jersey income tax return instruction booklet, Form NJ-1040
More information on calculating the New Jersey adjusted basis and the New Jersey gain or loss on the disposition of a partnership interest or S corporation shares is available in Tax Topic Bulletins GIT-9P
, Income From Partnerships
, and GIT-9S
, Income From S Corporations.
For additional information about exempt obligations, refer to Tax Topic Bulletin (GIT-5