New Jersey BUS-2 Loss Carry Forward

[DrKRoberts]

Taxpayer is a non-resident of NJ.  Sold rental property in 2025 which released a federal passive loss of about $84,000 on the federal return. NJ N/R return is taxing the capital gain of the property (as it should) and carrying forward the passive activity losses to 2026.  

Does NJ not release passive activity losses when the property is sold?  Or am I just missing a box to check in ProSeries?

[GodFather]

I hope the information I[ve attached helps. 

[DrKRoberts]

Ok, so it's a NJ thing.  This is the first year we are doing the return and the 2024 NJ return (NJ-BUS-2, Part III, Line 12) is showing a capital loss carrying forward to 2025.  So that figure really means nothing. It's really a "use it or lose it" situation.  If he had no other passive or active income to offset that loss in the year the loss occurred, then it's just lost.

Thank you

[Skylane]

Correct,,, it’s a NJ thing 

[Nancy9]

MORONEY v. DIRECTOR DIVISION OF TAXATION (2005)

Check this case out.  It's about loss not being able to be taken in NJ over the years.  Any of the loss that can be attributed to depreciation (that didn't offset other rental income) can be reported as an increase in basis when the property is sold.  I'm paraphrasing so read the decision to get full details.

MORONEY v. DIRECTOR DIVISION OF TAXATION (2005) | FindLaw

[Accountant-Man]

I just re-looked this up for a friend. Moroney says that the tax benefit rule for the rental's depreciation applies. Prior to Moroney  NJ did not allow the tax benefit rule.

Enter it as an adjustment to the gain(reducing the gain by increasing the adjusted basis) on sale.

[sjrcpa]

@DrKRoberts FYI PA is like this, too.

[Accountant-Man]

PA has allowed the TBR forever, I believe, but I have only been practicing since 1982, so not forever. (Although it feels like it.)

NJ just took longer to conform to federal Rev. Rul. 79-15.