I am a NJ resident and I have a rental property in Poland. I already reported the foreign rental income on my federal return (Schedule E) and claimed foreign tax credit (Form 1116) for the taxes paid to Poland's IRS.
When I am doing NJ state return, TurboTax does not make it clear whether I should also include this on my NJ state return or not. TT is asking this: "Is any of your rental income not subject to New Jersey tax? For example, it occurred during the period when you were not a resident of New Jersey and is not New Jersey source income."
So YES, it occurred during my residency in NJ, but NO, it's not a New Jersey source income.
So my question is: Do I also have to report this foreign rental income on my NJ state return?
It seems a little unfair to do it again, especially that NJ does not allow to take foreign tax credit: "No credit is permitted for taxes paid to the US Gov, Canada, Puerto Rico or any foreign country or territory".
On the other hand: "(...) if you are considered a New Jersey resident for tax purposes, you are subject to tax on income from all sources (worldwide income), regardless of where you are living".
Can someone give me a clear response whether or not NJ state taxes residents on foreign rental income?
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The correct answer to your question is what you express in the form of a quotation (presumably from the New Jersey Division of Taxation), near the end of your question.
". . . if you are considered a New Jersey resident for tax purposes, you are subject to tax on income from all sources (worldwide income), regardless of where you are living."
That is the way it works in most states, and certainly how it does in New Jersey. As a resident of the state of New Jersey, you are subject to state taxation on all of your worldwide income. Thus, you could work a (temporary) job in Japan, or own a rental property in Poland . . . and New Jersey will tax you on it, as long as you are a New Jersey resident (actually, it's called your "legal domicile" in the colorful language of tax law).
Sometimes, there are mitigation mechanisms in place to eliminate double-taxation, such as if you were to take a particular job in Pennsylvania, for example, you wouldn't have to pay income taxes to both states on your wage income -- but sometimes there is no such relief.
The tax laws may not always seem fair; and we would not disagree with that assessment. However, at the same time, the tax code is simply a set of rules that governs civil society, and occasionally it isn't fair or equitable.
We are sorry if this answer is something other than what you were hoping to hear, but at least now you have the facts. Thank you for asking this important question, and good luck with your rental activities.
The correct answer to your question is what you express in the form of a quotation (presumably from the New Jersey Division of Taxation), near the end of your question.
". . . if you are considered a New Jersey resident for tax purposes, you are subject to tax on income from all sources (worldwide income), regardless of where you are living."
That is the way it works in most states, and certainly how it does in New Jersey. As a resident of the state of New Jersey, you are subject to state taxation on all of your worldwide income. Thus, you could work a (temporary) job in Japan, or own a rental property in Poland . . . and New Jersey will tax you on it, as long as you are a New Jersey resident (actually, it's called your "legal domicile" in the colorful language of tax law).
Sometimes, there are mitigation mechanisms in place to eliminate double-taxation, such as if you were to take a particular job in Pennsylvania, for example, you wouldn't have to pay income taxes to both states on your wage income -- but sometimes there is no such relief.
The tax laws may not always seem fair; and we would not disagree with that assessment. However, at the same time, the tax code is simply a set of rules that governs civil society, and occasionally it isn't fair or equitable.
We are sorry if this answer is something other than what you were hoping to hear, but at least now you have the facts. Thank you for asking this important question, and good luck with your rental activities.
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