@rona11 Your clarification makes sense. It looks like the handling on the Fed side is correct. So you may have just run into some sort of strange NJ income matching rule. Hopefully you can get some help from a NJ expert.
FWIW, your $48k Cap Gain isn't really "fake". What the K-1 is telling you is that your partnership declined in value during 2020. It was investing in stuff, and lost a bunch of money ($48,439). It was worth a lot less at the end of 2020 than at the beginning. That's the loss on 11C. But then you got lucky. Even though the business was worth less, you managed to sell it for almost what you paid for it. That's the $48k Cap Gain.
So that obviously doesn't make you feel any better if NJ taxes you on the Cap Gain but refuses to give you a break on the business loss, but hopefully it helps explain why the tax authorities force these nuances.
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**Note also, I'm not a Tax Preparer/CPA. Just a volunteer, seasoned, TurboTax user.
Use any advice accordingly!
