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?
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.
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
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)?
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.
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
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
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?
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.
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
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?
California is even worse!
California is the worst in all states, for example, if you fail to file on
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!
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.
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
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.
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
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
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
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).
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
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
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 ...
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
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:
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.
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.
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