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magimagss
Level 2

Is foreign property rental income subject to New Jersey state tax?

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?

1 Best answer

Accepted Solutions
GeoffreyG
New Member

Is foreign property rental income subject to New Jersey state tax?

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.

View solution in original post

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4 Replies
GeoffreyG
New Member

Is foreign property rental income subject to New Jersey state tax?

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.

magimagss
Level 2

Is foreign property rental income subject to New Jersey state tax?

Hello. Thank you for the response and yes, I would agree that what I quoted pretty much answers the question.
However, I do not understand why TurboTax says this when I am going through my NJ return:
"Other Non-Wage Income.
Enter any non-wage income you received, including the portion earned or received while you were a New Jersey resident. Do NOT enter income that you previously entered on your FEDERAL return. (This is not common)."

How can you explain this? Because I got confused now.
GeoffreyG
New Member

Is foreign property rental income subject to New Jersey state tax?

Hello magimagss:

Thank you for your comments and your follow-up question.

In reply to that question, I respectfully believe that you are misreading the TurboTax screen, or at least the intent of the question.  I've posted a screen-capture image (and attached it to my original answer) of what I believe you are seeing in the New Jersey TurboTax module.  Please click to open the image, and re-read the highlighted text carefully.

If we look at that screen together, the program is actually asking us to input income here that is not already taken into account, or entered, elsewhere on the federal side of the program.  In other words, if you've already created a Schedule E for your Polish rental property income in the federal TurboTax interview, then you will have nothing related to your Polish property to now enter here, separately, in the New Jersey interview.  Thus, you can safely ignore this screen, as it pertains to anything regarding your Polish rental.

The income (and deductions) information from the federal side of the program will carry through to the New Jersey tax return . . . such that income taxable on your federal Form 1040 will also be taxable on your NJ-1040.  This is consistent with the original answer.

Hopefully that understanding will help to alleviate your confusion, when taken in conjunction with the information given previously.

Thanks for asking about this and be well.
magimagss
Level 2

Is foreign property rental income subject to New Jersey state tax?

I think the screens we are looking at are not exactly the same. I am unable to attach a screenshot here but my screen says exactly this:
"Other Non-Wage Income.
Enter any other non-wage income you received, including the portion earned or received while you were a New Jersey resident. Do NOT enter income that you previously entered on your FEDERAL return. (This is not common)." The rest below is the same as in yours.
So when I am reading your screen, it makes more sense. As it clearly says: "income not already included elsewhere in this return".
So in this case I am not entering anything in this screen then.
Thank you for the clarification. I appreciate your time and effort. Have a nice evening!

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