:

Non-resident real estate in NJ - Do I need to file if I lose money?

I live not in NJ but I have a rental property in NJ which sometimes (barely) makes money and just as often (barely) loses money.
I have no other income from NJ and I live in California.
I realize I must file a Non Resident NJ income tax form when the rental makes money; but what is the recommendation when the NJ rental loses money?
--
>
>
 Click to see the full signature
Reply to
SF Man
I think you should file in order to demonstrate the loss, which is carried forward to next year.
--
>
>
 Click to see the full signature
Reply to
removeps-groups
I'm not a NJ expert but NJ has a "Gross Income Tax" that is decoupled from the Federal return. There would not be any carry forward of a net rental loss. If your rental expense exceeds your gross rental income, your net rental income is zero. See the instructions for the NJ Schedule C. As such, I would conclude that there would not be a filing requirement with zero income. However, I would recommend that one file just to avoid getting a letter from the tax authorities as their records show previous income and no record that the property was sold.
--
Alan
http://taxtopics.net
Reply to
Alan
I agree with Alan. NJ is very aggressive about assessing penalties for any presumed infraction. It's far better to file a $0 income return than to run the chance you'll have to fight a late filing penalty. NJ's penalty structure includes a mandatory monthly penalty in addition to any penalty based on the return's contents.
Ira Smilovitz Leonia, NJ
--
>
>
 Click to see the full signature
Reply to
ira smilovitz
Are you saying that if you have disallowed rental losses then when you dispose of your rental property, you cannot take these past rental losses on the NJ return (although you do so on the federal return)?
--
>
>
 Click to see the full signature
Reply to
removeps-groups
My post had nothing to do with disposition of an asset. My post dealt with how you don't get to report a loss and you don't get to carry forward the unreported loss. I did not look at the NJ instructions for computing gain or loss on the disposition of rental property. However, as there are no carry forwards and no allowed rental losses, I don't see how you can ever get to use them. On the federal return the losses carried forward from prior years are used to calculate your net rental income/loss for the year of disposition. On the NJ return, you can only have net rental income or zero income on Schedule C.
I did look at how NJ wants you to calculate the net gain/loss on disposition. It says you are to use the cost basis or adjusted cost basis from your federal return. As those carried forward losses don't have any effect on cost basis, you wouldn't get to use them here either.
But hey... I'm not a NJ tax expert.
--
Alan
http://taxtopics.net
Reply to
Alan
I file the 3-page nonresidential return (1040NR) for New Jersey, so I don't 'see' a schedule 'C' (it may be there ... but I don't have it on my last year's tax return).
However, I do see that on the first page of that NJ 1040NR tax return (verbatim) on line 19: -> "Net gains or income from rent, royalties, patents (From Line 61)=0"
Notice that I definitely had accrued carryover losses; but the NJ 1040NR only seems to be concerned with gains (otherwise that would have been a negative number).
Line 61 on page 3 of that 3-page NJ 1040NR which is listed (verbatim) as: "Net income (Combine Columns b,c,d, & e)(Enter here & on Line 19)(if Loss enter ZERO)" NOTE: Emphasis on the ZERO is exactly as shown on the NJ 1040NR.
The columns b, c, and d, are listed as "Net Rental Income (Loss)"; these, of course, in my case, have negative numbers.
It's weird that NJ does not allow current year rental losses, let alone prior year carryovers!
So now, like others, I'm confused how I ever get to use the losses when I eventually dispose of the property in NJ?
--
>
>
 Click to see the full signature
Reply to
SF Man
I don't disagree.
What I found out, surprisingly, from page 4 of the NJ1040NR instructions, is that anyone with a 'gross income' (from all sources!) of over $10,000 (single) or $20,000 (married) must file a tax return for New Jersey.
formatting link

Interestingly, nowhere in those instructions could I find a statement saying that income must be "NJ income" ... so ... shockingly, a literal interpretation of the instructions would imply that everyone in the United States must file a NJ tax return!
That anomaly aside, it appears I must file. It turns out that the property is 'only' owned by me, so, I didn't realize until I read that form that I should not be filing jointly. That drops the requirement down to $10,000 but still, since it comes from all sources, the fact is that I need to file.
Would you recommend an amended return for the prior years since I accidentally filed jointly ... or ... just moving forward, to file singly in NJ while filing jointly for the Federal and California?
--
>
>
 Click to see the full signature
Reply to
SF Man
California is even worse!
California is the worst in all states, for example, if you fail to file on time.
They can and do assess a 25% penalty on your taxes simply if you don't answer their letters within a month! (Ask me how I know!).
So, if you owe them, say, $10,000 and if you've paid already $12,600 through regularly scheduled deductions ... but you don't answer their letters within a month, they immediately CHANGE your due tax from $10,000 to to $12,500 ... and your final refund will only be $100.
No other state has this heinous penalty simply for filing late but not having ever owed them a penny!
--
>
>
 Click to see the full signature
Reply to
SF Man
formatting link
Here is my interpretation of the NJ statutes. If you are a nonresident and if married, your spouse is a nonresident and there is no NJ source income, there is no need to file. This is pretty obvious. If at least one of you has NJ source income, your tax is going to be computed as if you were a resident of NJ multiplied by a ratio that has your NJ sourced gross income as the numerator (Column B on the form) and your NJ gross income if you were a resident (Column A) as the denominator. By law, a resident includes all income from "everywhere". So Column A on the nonresident return is prepared as if you were a resident.
If you filed a federal joint return, you have the option of filing a NJ joint return or a NJ married separate return (given my assumption that both of you are nonresidents). As the amount of tax is computed by using the ratio of Column B (NJ source income) over Column A (total income as if a resident) it is pretty obvious that filing a joint return is beneficial if you both had income but only one of you had NJ source income as it increases the denominator (Column A) and lowers the ratio.
As to filing requirement of a nonresident with NJ source income: The instructions do say you use income from everywhere. Everywhere is the definition for Column A. Therefore, I would conclude, that if you do have NJ source income, your filing requirement is the same as a NJ resident. This is not inconsistent with some other states who use either the same rule or want a return if you filed a federal return and had source income from that state.
--
Alan
http://taxtopics.net
Reply to
Alan

Its also worth keeping in mind that the statute of limitations for the assessment of tax does NOT even start to run until a signed return is filed. Accordingly, I always recommend filing a return, in fact EVERY return, even when one isn't required by law. If you don't lock the door how can you fuss when the come back years from now?
Gene E. Utterback, EA, RFC, ABA
--
>
>
 Click to see the full signature
Reply to
Gene E. Utterback, EA, RFC, AB
You don't. There is no provision for claiming losses on a NJ income tax return. You can net losses in one form of income against income from the same type of income, but you can't claim an overall net loss.
Ira Smilovitz Leonia, NJ
--
>
>
 Click to see the full signature
Reply to
ira smilovitz
formatting link
No. You must file a NJ nonresident (or resident, if appropriate) return if you have NJ source income of any amount and more than $10K/$20K of gross income from all sources. "NJ source income" means any income or loss from NJ sources, even if such loss is not reported on a NJ income tax return. So, taxpayers who are not residents of NJ and have no income/(loss) sourced to NJ do not have to file in NJ solely because they had more than $10K/$20K of gross income from all sources.
You misread the instructions. Generally, NJ requires the same filing status as federal (except in the case of civil unions). However, if both spouses were non-residents and only one has NJ-source income, that spouse may elect to file a separate return. You aren't required to file separate. There is no need to go back and amend back years. You may want to consider whether you want to file future NJ returns separately or jointly in the future as the filing of a joint return could make your spouse liable for any tax/penalty assessed by NJ in the future.
Ira Smilovitz Leonia, NJ
--
>
>
 Click to see the full signature
Reply to
ira smilovitz
That's useful information which I always wondered about.
For example, if the statute of limitation is, say, 7 years, for an error, how long is it if you are depreciating an asset 27.5 years (which is as high as 40 years for AMT purposes)?
Is the statute of limitations on an item in the depreciation tables 'still' only 7 years, or is it 27.5 + 7 years (or even 40 + 7 years for AMT purposes)?
--
>
>
 Click to see the full signature
Reply to
SF Man
I'm sure I did! :)
There is no way NJ 'could' tax everyone; I was just saying that out of the 47 instances of the word "New Jersey income" in the 45-page "NJ-1040 instructions", I didn't see where it said what you just said (and which must be obvious ... but I don't see it).
formatting link

NOTE: All these mention "New Jersey income" but none specifically say what you (and I) know must be the case!
1. Compensation paid to Pennsylvania residents employed in New Jersey is not subject to New Jersey income tax (page 4 of 45).
2. You must file a New Jersey income tax return if - your filing status is: Married/CU couple, and your gross income from everywhere was more than: $20,000 (page 4 of 45)
3. You may also be considered a nonresident for New Jersey income tax purposes if you were domiciled in New Jersey and you met all three of the following conditions for the entire year: 1. You did not maintain a permanent home in New Jersey; and 2. You did maintain a permanent home outside of New Jersey; and 3. You did not spend more than 30 days in New Jersey. (page 4 of 45).
4. You Also Need to File a Return if: You had New Jersey income tax withheld and are due a refund. (page 4 of 45)
5. compensation paid to Pennsylvania residents employed in New Jersey is not subject to New Jersey income tax (page 5 of 45)
6. If New Jersey income tax was withheld from your wages, you must file a New Jer sey nonresident return to obtain a re-fund. (page 5 of 45)
7. Withholdings. If New Jersey income tax was withheld, enter the amount from your W-2(s) on Line 44. (page 5 of 45)
8. Signed Statement. Pennsylvania resi-dents employed in New Jersey who had New Jersey income tax erroneously with-held must enclose a signed statement de claring the following, (page 5 of 45)
9. A nonresi-dent service person¢s military pay is not subject to New Jersey income tax. (page 7 of 45)
10. A nonresident serviceperson is not re-quired to file a New Jersey income tax return unless he or she has received in-come from New Jersey sources other than military pay. (page 8 of 45)
11 & 12. If your permanent home (domicile) was New Jersey when you entered the mili-tary, but you have changed your state of domicile or you satisfy the conditions for nonresident status (see chart on page 4), then your military pay is not subject to New Jersey income tax. File Form DD-2058-1 or DD-2058-2 with your fi-nance officer to stop future withholding of New Jersey income tax. (page 8 of 45)
13. If you are a nonmilitary spouse/civil union partner whose wages are exempt from New Jersey gross income tax, file Form NJ-165, Employee¢s Certificate of Nonresidence in New Jersey, with your employer to stop future withholding of New Jersey income tax. (page 8 of 45)
14. If New Jersey income tax was withheld or estimated payments were made in error, you must file a nonresident return (Form NJ-1040NR) to obtain a refund and en-close a statement explaining how your wages are exempt under the Military Spouses Residency Relief Act along with a copy of your spousal military identifica-tion card. (page 8 of 45)
15. In general, your New Jersey income tax return is due when your Federal income tax return is due. (page 8 of 45)
16. For calendar year filers, the 2010 New Jersey income tax return is due by April 18, 2011. (page 8)
17. For calendar year filers, the 2010 New Jersey income tax return is due by April 18, 2011. (page 8)
18.All New Jersey income tax returns postmarked on or before the due date of the return are considered to be filed on time. 8
19. An extension of time is granted only to file your New Jersey income tax return. (8)
20. Electronic Check (e-check). You may be able to pay your 2010 New Jersey income taxes or make a payment of estimated tax for 2011 by e-check. (page 9)
21. Credit Card. You may pay your 2010 New Jersey income taxes or make a payment of estimated tax for 2011 by credit card. (page 10)
... and so on ...
--
>
>
 Click to see the full signature
Reply to
SF Man
That's amazing!
I'm confused (since disallowing losses is foreign to me).
If I sold the NJ rental property, at, say, $300K and I subtract the cost basis of, say, $200K, that's 100K "profit" to pay NJ tax on.
Then I would add back the depreciation taken in all prior years, say, $25K, so now that's a $125K "profit" to pay NJ tax on.
If I have, say, $50K of accrued losses outstanding on that rental, the Federal tax would allow me to decrease that "profit" by that amount to make it only $75K of long-term taxable income.
But, what would NJ tax me on? The $125K (which doesn't include the accrued losses) or the $75K profit (which was reduced to this by the accrued losses)?
--
>
>
 Click to see the full signature
Reply to
SF Man
You miss the point of Gene's post. The statute of limitation that he is referring to is the period of time that the IRS has to assess tax. If you don't file, the IRS is not limited by time. The general rule for income tax is that the IRS has 3 years from the due date of the return or the date filed, whichever is later. There are exceptions to the 3 year rule. See the following document for an explanation:
formatting link
--
Alan
http://taxtopics.net
Reply to
Alan
Your NJ capital gain on the disposition uses the federal cost basis. This will result in a capital gain given your example. Your disallowed losses carry forward to the federal Schedule E. Any loss on this schedule affects your ordinary income, not your capital gain income. On the NJ return, there would not be any loss on the NJ Schedule C as they don't allow losses on rental property.
--
Alan
http://taxtopics.net
Reply to
Alan
No. There is no addback of depreciation taken for NJ purposes. However, there may be a depreciation adjustment in cases where NJ tax law doesn't follow federal tax law with regard to allowable depreciation.
Not NJ. There is no provision for suspended losses or carryforwards/carrybacks. If you have multiple rental properties, you can offset income from one with losses from another. If you can't take the loss in the year generated (and usually you cannot), it's lost forever.
None of the above. You would be taxed on $100K of profit.
Ira Smilovitz Leonia, NJ
--
>
>
 Click to see the full signature
Reply to
ira smilovitz
formatting link

Your argument is somewhat specious. The starting point for the requirement to file any tax return is generation of income deemed to be sourced from that taxing entity. Each state is free to set the rules which apply to its imposition of tax. When it comes to business entities, the income allocation rules may appear to be unfair, often being based on ratios of sales, payroll and/or assets located within the state.
Also, tax return instructions are not the definitive representation of the law.
NJ wages paid to PA residents is not NJ-source income per an interstate agreement between PA and NJ. It is specifically mentioned because it is an exception to the general rule.
All of the other citations (snipped) help define what is and is not NJ-source income.
Ira Smilovitz Leonia, NJ
--
>
>
 Click to see the full signature
Reply to
ira smilovitz

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.