N.J. Admin. Code § 18:35-2.4

Current through Register Vol. 56, No. 19, October 7, 2024

Section 18:35-2.4 - Election to exclude up to $ 500,000 of gain on sale of principal residence

(a) The rules concerning the election to exclude up to $ 250,000 ($ 500,000 on a joint return) of gain on the sale of a principal residence are as follows:

1. General rule: Capital gains exclusion; taxpayers selling their principal residence may exclude all or part of any gain on the sale of a principal residence from gross income, regardless of taxpayers' age, subject to I.R.C. § 121, which terms are mirrored in the Gross Income Tax Act in 54A:6-9.1. Capital gain and the exclusion of all or part of the gain is computed in the same manner as for Federal income tax purposes, except that a civil union couple may use Federal income tax computations as necessary in calculating any gain as if they were married, for purposes of calculating the State income tax exclusion.

2. Requirements: Regardless of age, a taxpayer can claim the exclusion if, during the five-year period ending on the date of the sale, taxpayer meets the following two tests:

i. The taxpayer has owned the home for at least two years (ownership test); and

ii. The taxpayer has lived in the home as a principal residence for at least two years (the use test).

3. Joint return: In the case of jointly owned property where a joint return is filed, the taxpayers qualify for the exclusion if all of (a)3i through iii below apply. If only one spouse/civil union partner meets the requirements in (a)3i and ii below, the qualified spouse/civil union partner can exclude up to $ 250,000 of the gain when filing a joint or separate return.

i. Either spouse/civil union partner owned the property for a total of two years within the five-year period ending on the date of the sale; and

ii. Both spouses/civil union partners must have used the property as their principal residence for two years within the five-year period ending on the date of sale; and

iii. Neither spouse/civil union partner sold and excluded the gain from the sale of another home during the two years prior to the date of sale and after May 6, 1997.

4. Deceased spouse/civil union partner: In the case of an unmarried individual whose spouse/civil union partner is deceased on the date of the sale or exchange of property, the period the unmarried/no longer in a civil union individual owned and used the property includes the period the deceased spouse/civil union partner owned and used the property before the deceased spouse's/civil union partner's death.

5. Amount of exclusion: Any amount of the gain from the sale of a principal residence that is taxable for Federal income tax purposes is taxable for New Jersey income tax purposes. Any amount that is excludable from income for Federal income tax purposes is excludable for New Jersey income tax purposes. A civil union couple shall determine the State income tax exclusion in the same manner as a married couple.

6. The taxpayer must elect to exclude the gain realized from the sale or exchange of a principal residence for Federal income tax purposes in order to take the same exclusion for New Jersey income tax purposes.

7. Taxpayers who meet the Federal qualifications for a reduced exclusion due to a change in health, place of employment, or unforeseen circumstances may also claim the same reduced exclusion amount for New Jersey income tax purposes.

N.J. Admin. Code § 18:35-2.4

Amended by 48 N.J.R. 295(a), effective 2/16/2016