Rental Carryover Loss on NJ Returns

Forum|Forum|4 years ago
February 20, 2022
2 replies
0 views

Last year I sold a rental property which I owned for about 10 years.

I sold it for roughly the same amount as I bought it.

I had accumulated a substantial amount of passive activity carryover loss for the property.

This seems to have been handled correctly on the federal return.

However, on the NJ return, it's showing a substantial profit (because of the depreciation). The loss doesn't seem to apply. Is this correct?

Best answer by RobertB4444

How does one calculate the "unused" depreciation(for Koch/Moroney)? Some years I lived in NJ, with regular job income, when the rental income was greater than expenses, but lower than depreciation plus expenses (which turned into carryover losses) and others I lived out of state with no NJ income, including the year in which I sold the investment property.

Thank you!

Passive loss carryovers are on form 8582 in your federal return. New Jersey doesn't allow passive loss carryovers and requires that you take losses against gains in the same category of income in the same year that they are incurred.

So if you look at your federal form 8582 and see prior year losses that would be the amount that went unused in New Jersey.

@aljfromnj

rjs

Employee

That sounds right. The following are from the Instructions for Form NJ-1040.

Page 7:
"No carryback or carryover of losses is allowed when reporting income on your NJ-1040."

Page 17:
"There is no distinction between active and passive losses for New Jersey purposes. You cannot carry back or carry forward such losses when reporting income on Form NJ-1040. You can deduct federal passive losses in full in the year incurred against any gain within the same category of income."

ihatetaxesjohnAuthor

Thanks... but since I haven't been able to write off any of the past losses in NJ because of the category of income (including the deprecation), why is the depreciation reducing my cost basis in NJ? I haven't realized the depreciation loss in NJ, so why is NJ recapturing it?

AndyFromNJ

Did you manage to find an answer to your question? I am in the same boat and really hate that I can not apply relatively large loss through turbo tax. Maybe one has to add it to net and simply put that number. I am really frustrated there is none to ask.

ihatetaxesjohnAuthor

Yes... I located a CPA (actually several mentioned it) who explained to me that there's case law in NJ (one is called Koch the other is Moroney, which is based on Koch - you can search for these) that allows you to write off the unused depreciation (but not any other remaining losses - which you'll have to carry). TurboTax Online WILL NOT handle it. I've escalated, they researched it, and basically said that unless it's in the filing instructions, they do not take case laws into account like this. TurboTax Online can't be used to file it.

However, the Desktop version can be used to edit the appropriate form. The software won't automatically do it, so you have to edit it manually. I was instructed to add a line item in NJ-DOP form listing the unused depreciation with a description (I used: Koch/Moroney Treatment of Unused Depr.) You should make sure you have all the previous returns to determine the depreciation. You'll also have to fix up the NJ-BUS form to fix the carryover of the remaining losses.

ihatetaxesjohnAuthor

Also, I was explicitly told by the "live experts" that Online did not and cannot handle this and to get a refund and use the Desktop (which, as. I mentioned, also didn't handle it automatically but at least allowed manual fixing). Trying to the get the refund for the Online version was a whole separate ordeal. 🙂