NJ resident but sold a rental property in PA, how is property sale gain taxed in NJ and PA?

[Tax2019Pay]

Hi, I am a full year resident of NJ and owns a primary home in NJ.  I have a rental condo in PA and sold it.  Do I own income or capital gain tax in NJ or PA or both?  I hope that I am not double taxed by PA and NJ for this rental property sale. Thanks.

[ColeenD3]

Yes, this is taxable income for both states. Income is always taxable to your home state unless it is exempt.

Nonresidents of Pennsylvania. PA law taxes the income you earn, receive and realize from PA sources.  

Net Gain (Loss) from the Sale, Exchange or Disposition of Property
Nonresidents must report net income (loss) from the sale of real or tangible property in Pennsylvania.

NJ and PA do have reciprocity, but it does not pertain to capital gains.

NJ Income Tax – PA/NJ Reciprocal Income Tax Agreement

Compensation paid to Pennsylvania residents employed in New Jersey is not subject to New Jersey Income Tax under the terms of the Reciprocal Personal Income Tax Agreement between the states.

Similarly, New Jersey residents are not subject to Pennsylvania income tax either. Compensation means salaries, wages, tips, fees, commissions, bonuses, and other payments received for services rendered as an employee.

The Reciprocal Agreement covers compensation only. If you are self-employed or receive other income (ie., gain from the sale of property) that is taxable in both states, you must file a New Jersey nonresident return and report the income received.

Reciprocity 

[Tax2019Pay]

Hi, does this mean that capital gain will be triple taxed by Federal, NJ and PA? Thanks. 

[RaifH]

Sort of. You will be taxed federally and will have to fill out a nonresident form for Pennsylvania. Once your Pennslyvania return is completed with the income from your rental condo, this income will also be reported on your New Jersey return, but you will receive a credit of the tax you paid in Pennsylvania.

So if PA charges $200 in tax and NJ would have charged you $300 for the same income from the condo, you would pay PA 200 and owe NJ an additional $100. 

If PA charges you $200 and NJ would have only charged you $100, you only receive a $100 credit in NJ even though you paid PA $200. Basically, you end up paying the tax rate of whichever state has the higher tax on this type of income. 

In order for the credit to be properly applied to your resident NJ return, you will want to fill out the nonresident PA return first. 

[Tax2019Pay]

Thanks all so much.  I appreciate all of you taking time to address these questions.