New Jersey Treatment of Section 1202 stock
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Returning Member

New Jersey Treatment of Section 1202 stock

I have a gain on section 1202 stock in 2020.   For federal purposes it is eligible for a 50% exclusion.  New Jersey does not appear to adopt this exclusion.  However, none of the gain, not 50% nor 100% is carrying over to my New Jersey return.  I do not know why this is happening as everyting I have seen indicates such gain is fully taxable in New Jersey.   Please advise

2 Replies
Employee Tax Expert

New Jersey Treatment of Section 1202 stock

I don't see any mention of a treatment of the exclusion in the instructions to the New Jersey resident tax return form NJ-1040. Nor do I see anything referencing it on form NJ-1040 or the schedules attached thereto, such as the Other Income Statement.

 

Perhaps you could post more on the regulations indicating where it is taxable so we could research it better. 

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Returning Member

New Jersey Treatment of Section 1202 stock

Hi,

 

The New Jersey Gross Income tax is difficult in that it does not adopt federal taxable income as its starting point. Rather, gross income is defined by New Jersey statute NJSA 54A:5-1.   Certain aspects of federal law are incorporated in NJ law, but it is by specific reference to a federal provision, not an all encompassing general tie in. Since NJ defines its taxable gross income independently of the federal code, federal exemptions such as Qualified Small business stock in section 1202, would have to be specifically adopted by NJ statute in order to apply in figuring NJ tax.   There is presently before the NJ assembly a bill to adopt rules similar to IRC section 1202, but it has not yet been passed into law. Which would lead one to the conclusion that presently gain on sale of qualified small business stock is fully taxable in New Jersey.   This is why I was confused when Turbo Tax did not transfer the full gain from the federal return to the NJ return.

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