02 Jan Does the tax plan change capital gains?melindaforrester/morguefile.com
Q. I know for federal taxes, as long as house gains are under $250,000, you owe zero capital gains tax. What is the New Jersey rate? Let’s say I bought my house for $600,000 and sell it for $700,000 and move out of the state in June 2018.
— Selling soon
A. Here’s how it works.
Under federal law in 2017, as long as you occupied your home as your principal residence for two out of the last five years, you are eligible to take the $250,000 gains exclusion from the sale of your home, said Frani Feit, a certified financial planner with Tradition Capital Management in Summit.
If you’re married filing jointly, the number goes up to $500,000.
The New Jersey exclusion matches the federal one.
In your example, Feit said, there is no tax either federally or for New Jersey on the $100,000 gain. If you sold the $600,000 home for $900,000, then you would have to recognize $50,000 in capital gains tax both at the federal and New Jersey levels.
Earlier versions of the new tax bill said for sales after Dec. 31, 2017, a homeowner would have to occupy the home as his principal residence for five out of the previous eight years, Feit said.
But that change never made it to the final bill.
Feit notes that if you continued to receive income from New Jersey sources after you moved out of the state, or if you received income from New Jersey sources prior to moving to the state, you will also have to file a New Jersey nonresident tax return, Form NJ-1040NR.
“In this case you will file both a part-year resident return and a part-year nonresident return,” she said. “So double check with your tax advisor.”
Also brush up on the “exit tax” so you’re not in for any surprises when you sell.
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This post was first published in January 2018.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.