Mary,
This is trickier than I thought. So my taxable income went down, but the full Cap gain on the house was considered gain from NJ source. This is perhaps what you were trying to tell me.
As a nonresident, you must calculate your tax on income from all sources as if you were a resident, and then prorate your tax based on your New Jersey source income.
So the run with the capital loss resulted in less tax, but not by the full amount would be of eliminating the gain on the house. This is a very tricky tax calculation.
