homesale NJ/AZ

[MGC94]

home inherited 2012 value 135,00

sold 2022 325,000

Selling expenses/closing costs/repairs over the years $39,000

Live in NJ. Home sold in AZ. Do they need to file AZ tax return?

The husband did most of the work. What do we do about labor costs?

Taxpayers question to me: Can we count rental of equipment to remove bushes, maintenance on palm trees, labor to do the work.  The amounts we gave were for the actual products.

Thank you for your help! With the gain at $135,000 they are owing about 20K

[BobKamman]

Yes, capital gain is taxed by Arizona.  No, his own labor does not count.  Trimming trees is maintenance.  "Repairs" are not added to basis.   No rental income for ten years?  They were just snowbirds?  

[MGC94]

No rental income. They used the money to buy a rental property in NJ for $198,000. 

She inherited the house when her mom passed. She only went out there a few times. The value when the mom passed was $135,000 

[qbteachmt]

"They used the money to buy a rental property in NJ for $198,000."

Are you mentioning this in anticipation of a 1031 exchange, which had to be done "like property for like property" in advance of all of these transactions? Or, are you thinking of the rule that expired about 30 years ago regarding investing more than the gain in a new property, to avoid tax on capital gain?

Neither of these will apply.

Sometimes people just make money and have to pay the taxes on that event.

[qbteachmt]

Oh, this is not your math: "With the gain at $135,000 they are owing about 20K"

Since there are repairs, not improvements (no addition, no new pool, etc), and since they sold it a decade after inheriting it, the math is:

Sales proceeds minus FMV at date of death

Which I see is about $190k.

[joshuabarksatlcs]

Live in NJ. Home sold in AZ. Do they need to file AZ tax return?

Agreed with @BobKamman 's Yes.

I haven't worked on NJ or AZ returns lately.  For a CA resident, a tax credit would be available to offset the CA tax by the tax paid to AZ on the sale.  

[Skylane]

Yes, NJ has a COJ credit available.

[BobKamman]

I will say nothing about how things are different in New Jersey.  Even when COJ means "Confession of Judgment" in the real world.  In the Garden State ("Even George Washington Grew Hemp!"), it means Credit for taxes paid to Other Jurisdictions.

Arizona is weird too.  They will give you credit for foreign taxes paid, even if you got them all back on the federal return.  

[MGC94]

I'm not referring to either rule. I am just saying what they did with the money 

[MGC94]

So they can do the NJ COJ for the taxes paid on the sale to AZ? 

[sjrcpa]

Yes.

[qbteachmt]

"I am just saying what they did with the money"

Are you finding some provision that tells you this will make the net proceeds from that sale nontaxable?

[sjrcpa]

@BobKamman Thanks for the definition of COJ.

I also love ☹️ NJ's BAIT for Pass Through Entity Tax

[BobKamman]

@sjrcpa Is that covered in the Master Tax Guide?

[sjrcpa]

Pub 17. 🤣

[Skylane]

@sjrcpa  COJ is the name of the form…. PTE/BAIT/SUCKS