Q. I am selling my home in New Jersey. I have been living in Florida for five years. The New Jersey home was rented to friends. What will I pay for capital gains tax? I paid $85,000 for the house over 10 years ago, I put a $20,000 roof on it and I may sell it for $115,000. The real estate commission will be $6,900 plus there are closing costs. I won’t have a big profit. How much should I expect to pay?
A. Your simple question does not lend itself to a simple answer.
Unlike federal taxes, where preferential tax rates exist for long-term capital gains — assets held more than one year — including a 0% rate for some taxpayers, New Jersey, like most states, taxes all income at the same graduated rates, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.
The lowest New Jersey tax rate of 1.4% is imposed on the first $20,000 of taxable income, whereas the top tax rate of 10.75% is imposed on taxable income above $5 million, Becourtney said.
“You would need to calculate your gain from the sale of your New Jersey residence including depreciation that would have been claimed using a prescribed life of 27.5 years for residential real estate,” he said. “Land cannot be depreciated, so an allocation should have been made for land to arrive at the building cost eligible for depreciation.”
Any capital gain from the sale of your rental property could be offset by capital losses from other sources, he said.
You’ll need to know your complete tax situation to be able to calculate how much tax you would incur from selling the New Jersey residence. Consider working with a tax professional who can review your total situation.
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Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.