New Jersey Treatment of Section 1202 stock

[rkruegs]

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

[ThomasM125]

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. 

[rkruegs]

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.

[imagingmike]

Did you ever get an answer to this?  I am having the same issue with the 2021 tax year.

[DaveF1006]

@bigtaxpayer  In researching this, I discovered that Senate Bill S 2265 which would have allowed the deduction of certain capital gains from sale or exchange of New Jersey qualified small business stock held for more than five years, and this passed in the Senate with a 38-1 vote on September 27, 2018. The bill crossed over since the introduction to the Assembly Appropriations Committee but was confirmed dead/failed as of January 8, 2020. The bill never reached the Governor’s desk for a signature or a veto.

I may have mistakenly included this link thinking the bill passed in the Senate but not followed up thoroughly. Once it failed, the State of New Jersey  deleted the original link that I received  the information from. I apologize for the misinformation.

At present, New Jersey does not conform to the federal Qualified Small Business capital gains tax exemption.

 Edited 01/26/22| 02:02 PM PST

@imagingmike 

[bigtaxpayer]

@DaveF1006 I was very interested in your post, but your link doesn't work.

Please advise

Thanks

[bigtaxpayer]

After searching a bit I did find this page:
https://www.njleg.state.nj.us/bill-search/2020/S4127

[bigtaxpayer]

@DaveF1006 thanks for the follow up.