25 Jun How can I figure out capital gains tax on this property?

Q. We are New Jersey residents and are selling a property in Florida. My partner and I own the property as Tenants in Common. We are not Homesteaded, thus no Florida residency. Can you give us some guidelines as to what the capital gains might be? I know there is no personal income tax in Florida so I would presume the gain would be paid to New Jersey. How is that calculated and what would be the approximate federal tax? I’m really just looking for percentages.
— Unsure

A. Congrats on the sale of the home.

Sales take a lot of work and consideration.

Presumably you and your partner own equal shares in the property so you will be splitting the gain, said Neil Becourtney, a certified public accountant and tax director with Smolin, Lupin & Co. in Red Bank.

So, it will reflect the excess of the gross sales price reduced by all closing costs over the original cost plus all capital improvements made to the property, he said.

Before addressing tax rates, the gain will be combined with other capital gains and losses reportable on your 2024 income tax returns to arrive at total capital gain income, he said. For federal purposes this would include any capital loss carryovers from 2023, so if either of you hold capital assets with unrealized losses you might consider selling them this year to offset the losses against your property gain, Becourtney said.

“For federal purposes, long-term capital gains — holding period exceeding one year — are given preferential treatment in the form of lower tax rates,” he said. “Whereas the top regular federal income tax rate is 37%, the top tax rate on long-term capital gain income is 20%.”

However, depending on the numbers, you could be subject to either a 0% or 15% federal capital gains rate, he said.

And there’s also the potential to incur the federal Net Investment Income Tax of 3.8% on the property gain, a function of your overall income in addition to the capital gains tax, he said.

Becourtney said a New Jersey resident is subject to tax on their income from worldwide sources so the fact that the property is located in Florida has no impact.

“Unlike federal taxes, the state does not provide any preferential tax rate for capital gains. Again, any 2024 capital losses from other sales would offset the property gain,” he said. “New Jersey does not allow any capital loss carryover from the prior year. New Jersey tax rates range from a low of 1.4% on the first $20,000 to a high of 10.75% on income above $1 million.”

Assuming you were already paying your 2024 income taxes based on your 2023 tax liabilities, the likelihood is that you will not have to remit any additional tax stemming from the property gain until April 15, 2025, the due date for your 2024 income tax returns, to avoid being penalized, Becourtney said.

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This story was originally published in June 2024.

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