You don't report the PTR as income, but you have to adjust the imported amount of real estate tax. Subtract the PTR from the imported amount and enter the result instead of the amount that was imported.
In your New Jersey tax return, when it asks how much property tax you paid, enter the "total base year property taxes" from line 10 of the PTR-2 form.
"Guessing "
Don't you guys ever read the Instruction Booklet ?
items exempt that don't appear on your return (pgs 7-8)
First of all, you are quoting the New Jersey instructions. andy-kerrigan is asking about his federal tax return. The New Jersey instructions do not apply to the federal return.
Secondly, what you quoted from the New Jersey instructions is about what is or is not reported as income. I agree that the PTR is not reported as income on the New Jersey return, and I did not tell andy-kerrigan to report it as income. But andy-kerrigan is not just asking about reporting the PTR as income. He's talking about the amount of real estate tax paid that is shown on his 1098, for which he gets a deduction on the federal return and a deduction or credit on the New Jersey return. He does not report the PTR as income, but he cannot claim an itemized deduction for real estate tax for which he was reimbursed. For the federal return he has to subtract the reimbursement (the PTR) from the total amount paid.
As for the New Jersey tax return, page 29 of the New Jersey instructions says "If you file Form PTR-2, enter on line 1 [of Worksheet H] the amount of your base year property taxes." That's why I told him to enter the base year amount in the New Jersey return.