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 tax.
When you calculate the gain or loss from each transaction, you can deduct expenses of the sale and your basis in the property. The basis to be used for calculating gain or loss is the cost or adjusted basis used for federal income tax purposes.
New Jersey and federal depreciation and expense deduction limits are different. 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 42K to calculate the adjustment. In addition, the New Jersey allowable IRC Section 199 deduction must be calculated on Form 501-GIT 40K, Domestic Production Activities Deduction. You should take the result into consideration when calculating the gain or loss on disposition of applicable property.
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.
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.
There is no distinction between active and passive losses for New Jersey purposes. You can deduct federal passive losses in full in the year incurred against any gain within the same category of income, but only in the year that it occurred.
For more information, see the section on Net Gains or Income From Disposition of Property in the New Jersey Income Tax return instructions 1.06MB.
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 417K, Income From Partnerships, and GIT-9S 373K, Income From S Corporations.
For additional information about exempt obligations, see Tax Topic Bulletin GIT-5 445K.