17 Dec Can I deduct rental losses from another state?

Q. Can you deduct rental losses in another state on a N.J. individual return?
— Landlord

A. Let’s set some basic guidelines as it concerns taxable income.

If you are a New Jersey resident, income you receive — regardless of what state it is derived in — is fully taxable to your home state, said Steven Gallo, a certified public accountant and personal financial specialist with U.S. Financial Services in Fairfield.

If you are required to pay tax to the non-resident state that the income is derived in, you may be eligible for a tax credit for those taxes paid on your New Jersey return, he said.

Next, New Jersey, for all intents and purposes is a gross income state for tax purposes. That means losses from businesses, investments or real estate are not deductible in New Jersey except against like-kind income, Gallo said.

He offered this example: Let’s say you have two rental properties. Property A generates income of $10,000 and Property B generates a loss of $5,000. For New Jersey tax purposes, you would only show net rental income of $5,000. However, if Property A generated a loss of $5,000 and Property B generated a loss of $5,000, for New Jersey tax purposes, you would not be able to deduct the $10,000 loss, Gallo said.

“So to answer your specific question, rental losses on a property you own in a different state would be deductible on your New Jersey tax return only to the extent that you have rental income from other properties,” he said. “Otherwise you will not receive any tax benefit in New Jersey.”

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This story was originally published on Dec. 17, 2020.

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