Non-Resident NJ State Income tax on sale of rental property

[whdw41a]

I live in Texas, which has not state income tax,  and I sold a rental property I have in New Jersey that resulted in a significant capital gain.  I am aware I need to file NJ State Tax.  At the time of sale (Nov) the title company withheld $9,000 for NJ state tax which is required from non-resident real estate sales, this amount was the minimum.   I did pay and additional $15,000 as an estimated tax payment to avoid a penalty for underpayment in NJ.

The question is this - Do I show the tax paid to NJ as ordinary State Income tax or is there a way to deduct it as part of the sale of the property. Rental income was negative for the year.    If I do need to show it as ordinary state income tax can I deduct the $9000 I paid in 2021 and the $15,000 I paid as an estimated tax in 2022 for 2021.  I understand deduction for state taxes is limited to 10K.

[Carl]

When completing the federal tax return which is well before you even start the state tax return, under the Deductions & Credits tab there's a selection for Estimates & Other Taxes Paid. In that section you have sub-sections where you can enter taxes paid to the IRS, as well as taxes paid to one or more states. That's where you'll enter the $15K you paid to NJ, and it will be (should be) picked up by the NJ state return at some point when/after you start working on that state return.

[whdw41a]

To be clear $9,000 was withheld and paid in November of 2021 to the NJ State tax not the IRS .  This was for capital gain income from the sale of a rental property in NJ.  In January of 2022 I paid an additional $15,000 to NJ as an estimated payment for tax due in 2021.  After the 2021 are done I will not be filing NJ State tax again.  So my questions are:

1) Do I show the amount paid as state income tax on the federal return

2) The tax paid to NJ in 2021 plus the estimated NJ tax paid for 2021 in 2022 was an addition $15,000.  Do I have to take the full $24,000 on my Federal return for 2021 or can I take $9K in 2021 and the estimated tax paid in 2022 for 2021 on my 2022 Federal return.

3) Should this tax payment be should as State Income tax on the Federal return or does it go on Schedule E somehow because it was related to the sale of the house.

Ed

[Carl]

1) Do I show the amount paid as state income tax on the federal return

If you will look under the deductions and credits tab, you'll see a section for "Estimates and """OTHER"""" taxes paid. If you will work through that section, you will specifically and explicitly be asked for state taxes paid on one of those screens.

2) The tax paid to NJ in 2021 plus the estimated NJ tax paid for 2021 in 2022 was an addition $15,000. Do I have to take the full $24,000 on my Federal return for 2021 or can I take $9K in 2021 and the estimated tax paid in 2022 for 2021 on my 2022 Federal return.

If the additional $15K was applied "by you" to your 2021 tax liability at the time you paid it, then when you paid it does not matter "to a degree".  You will report the payment on your 2021 tax return.

3) Should this tax payment be should as State Income tax on the Federal return or does it go on Schedule E somehow because it was related to the sale of the house.

No. You will only enter your tax payments "one" "time" in the Estimates & Other Taxes Paid section.

Ed

[whdw41a]

I am using Turbo Tax for the NJ tax filing - Don't the amounts I put in for estimated taxes on the Tax Payment Worksheet handle that?

Ed

[GeorgeM777]

Yes, the NJ taxes, the amount withheld by the Title company, and the $15,000 estimated tax you paid can be included on Schedule A of your federal return.  And yes, there is that $10,000 limitation for state and local income taxes. 

To follow-up on the previous posts, to enter your estimated tax paid, follow these steps:

In TurboTax online,

1. Go to Deductions & Credits
2. scroll down the page to Estimates and Other Taxes Paid
3. select Estimated Tax Payments
4. proceed to enter your information.

@whdw41a

[Syed_Shahid]

Thanks guys!  Your Q&A has helped me solve my problem.  I have very similar situation after selling my property in 2022, as non-resident of NJ.  I was not able to find where to enter the source deduction that my title company took from my proceeds and I was going crazy how to claim that payment.

Thanks Carl.