N.J. Admin. Code § 18:35-2.8

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

Section 18:35-2.8 - Alternative business calculation

(a) For tax years beginning on or after January 1, 2012, 54A:3-9 establishes an alternative business calculation under the New Jersey Gross Income Tax Act (Act) with the intent of giving tax relief to gross income taxpayers with business losses. The Act provides an adjustment to taxable income, which uses a calculation that consolidates business income and/or loss and allows taxpayers to carryforward unutilized business losses.

(b) The alternative business calculation applies to residents, nonresidents, part-year residents, part-year nonresidents, estates, and trusts with income or loss derived in one or more of the four categories of business income specified under (c) below.

(c) The four categories of business income determined pursuant to N.J.S.A. 54A:5-1b., d., k., and p. and N.J.A.C. 18:35-1.1, 1.3, and 1.5, included in the alternative business calculation are:

1. Net profits from business;

2. Net gains or net income derived from or in the form of rents, royalties, patents, and copyrights;

3. Distributive share of partnership income; and

4. Net pro rata share of S corporation income.

(d) The alternative business calculation does not affect the reporting of income in the four qualified categories of business income on the New Jersey gross income tax return.

1. A net loss in one category of gross income cannot be used to offset income in another category of gross income.

(e) For the purposes of this section the following words and terms shall have the following meanings, unless the context clearly indicates otherwise.

1. "Regular business income" (for computing the alternative business calculation only) is the sum of net income from the four types of business income categories set forth in (c) above and in accordance with N.J.S.A. 54A:5-2.

2. "Alternative business income or loss" is the sum of the net income or net loss sustained in the four types of business income categories set forth in (c) above plus any allowable alternative business loss carryforward.

3. "Business increment" is the excess of regular business income over alternative business income. When computing the business increment, alternative business income cannot be less than zero.

4. "Alternative business loss carryforward" is an alternative business loss to the extent it is not utilized in the current tax year.

(f) To compute the alternative business calculation, taxpayers subtract alternative business income from regular business income to determine the business increment.

1. If, after consolidation and netting, there is an alternative business loss, taxpayers must use zero as alternative business income for the alternative business calculation.

(g) An adjustment is allowed against a taxpayer's New Jersey taxable income in an amount equal to 50 percent of the business increment, subject to the following five-year phase-in of the applicable percentage:

For tax years beginning:	2012	2013	2014	2015	2016 &
after
Percent of business increment:	10%	20%	30%	40%	50%

(h) A nonresident taxpayer will compute the alternative business calculation using the income in the everywhere column of the nonresident return. The income reported in the New Jersey source column will not be included in the alternative business calculation.

(i) Part-year residents shall prorate income in accordance with the New Jersey Gross Income Tax Act. The alternative business calculation shall be calculated utilizing the business income/(loss) reported on the part-year resident and/or nonresident return.

(j) An alternative business loss sustained by a taxpayer for any taxable year beginning on or after 2012 becomes an alternative business loss carryforward.

1. For the purpose of calculating an alternative business loss carryforward, taxable year shall mean the accounting period covered by the taxpayer's return.

2. The alternative business loss carryforward is carried to each of the subsequent taxable years and is reduced in such subsequent year by the amount of the alternative business income.

3. The alternative business loss carryforward may not be carried back to any taxable year preceding the year of the loss.

4. The alternative business loss carryforward for any taxable year beginning on or after January 1, 2012 shall be permitted as an alternative business loss carryforward, reduced in accordance with (j)2 above, to each of the 20 taxable years following the year of loss.

(k) The alternative business calculation will have no effect on basis in determining income or loss arising from the disposition or sale of a business asset, interest, or stock in a business entity held by a gross income taxpayer.

1. As used in this subsection, "business asset" means the underlying property utilized in the business as described in 54A:5-1.b and d.

2. As used in this subsection, "business entity" means any business or commercial venture that is organized as an S corporation or partnership or any business or commercial venture that is classified as a partnership for Federal income tax purposes.

(l) The provisions of this section are illustrated by the following examples:

Example 1: Determining the portion of the business increment used as an adjustment to taxable income and alternative business loss carryforward amount for a taxpayer with one business entity.

Jim is a full-year New Jersey resident. Jim's only source of business-related income/(loss) is from New Jersey Partnership ABC. His distributive share of partnership income is as follows:

Year 1	Year 2	Year 3	Year 4	Year 5
Partnership	($ 600)	$ 1,000	($ 800)	($ 700)	$ 900

ABC

Year 1	Reportable Regular Business Income (RBI)			Alternative Business Income/(Loss) (ABI)
Partnership ABC	0			(600)
Total	0			(600)
Alternative Business Loss
Carryforward to Year 2			(600)
Business Increment (RBI-ABI)			0
(Note: If ABI is negative, use zero)
Year 1 phase-in percentage			10%
Taxable Income Adjustment			0

The amount reportable as distributive share of partnership income on Jim's return is zero since losses are not recognized on the New Jersey return. Jim's taxable income adjustment in this year is zero because the adjustment cannot reduce regular business income by more than 10 percent. Since Jim has an alternative business loss, this amount becomes the loss carryforward to be included in Year 2 calculation of alternative business income/(loss).

Year 2	Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership ABC	$ 1,000	$ 1,000
Alternative Business
Loss Carryforward	($ 600)
Total	$ 1,000	$ 400
Alternative Business
Loss Carryforward to Year 3	0
Business Increment	$ 600
(RBI-ABI)
Year 2 phase-in	20%
percentage
Taxable Income	$ 120
Adjustment

The amount reportable as distributive share of partnership income on Jim's return is $ 1,000. Jim's taxable income adjustment in this year is $ 120.00, which represents 20 percent of the savings from the carryforward of unused losses. Since Jim has alternative business income this year, there is no alternative business loss carryforward to Year 3.

Year 3	Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership ABC	0	($ 800)
Alternative Business
Loss Carryforward	0
Total	0	($ 800)
Alternative Business
Loss Carryforward to Year 4	($ 800)
Business Increment	0
(RBI-ABI)
(Note: If ABI is negative, use zero)
Year 3 phase-in	30%
percentage
Taxable Income	0
Adjustment

The amount reportable as distributive share of partnership income on Jim's return is zero since losses are not recognized on the New Jersey return. Jim's taxable income adjustment in this year is zero because the adjustment cannot reduce regular business income by more than 30 percent. Since Jim has an alternative business loss, this amount becomes the alternative business loss carryforward to be included in Year 4 calculation of alternative business income/(loss).

Year 4	Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership ABC	0	($ 700)
Alternative Business
Loss Carryforward	($ 800)
Alternative Business
Loss Carryforward to Year 5	($ 1,500)
Business Increment	0
(RBI-ABI)
(Note: If ABI is negative, use zero)
Year 4 phase-in	40%
percentage
Taxable Income	0
Adjustment

The amount reportable as distributive share of partnership income on Jim's return is zero since losses are not recognized on the New Jersey return. Jim's taxable income adjustment in this year is zero because the adjustment cannot reduce regular business income by more than 40 percent. Since Jim has an alternative business loss, this amount becomes the alternative business loss carryforward to be included in Year 5 calculation of alternative business income/(loss).

Year 5	Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership ABC	$ 900	$ 900
Alternative Business
Loss Carryforward	($ 1,500)
Total	$ 900	($ 600)
Alternative Business
Loss Carryforward to Year 6	$ 600
Business Increment	$ 900
(RBI-ABI)
(Note: If ABI is negative, use zero)
Year 5 phase-in	50%
percentage
Taxable Income	$ 450
Adjustment

The amount reportable as distributive share of partnership income on Jim's return is $ 900.00. Jim's taxable income adjustment in this year is $ 450.00, which represents 50 percent of the savings from the carryforward of unused losses. Since Jim has alternative business loss, this amount becomes the alternative business loss carryforward to be included in Year 6 calculation of alternative business income/(loss).

Example 2: Determining the portion of the business increment used as an adjustment to taxable income and alternative loss carryforward amount for a taxpayer with business income less than business losses in a five-year period.

Harry is a New Jersey resident. Harry is a partner in New Jersey Partnership ABC and has a New Jersey rental property. His distributive share of partnership income/(loss) and rental income/(loss) are as follows:

Year 1	Year 2	Year 3	Year 4	Year 5
Partnership	$ 1,000	$ 2,000	$ 4,000	$ 5,000	$ 6,000
ABC NJ Rental Activity	($ 5,000)	($ 4,000)	($ 4,000)	($ 3,000)	($ 2,000)
Year 1	Reportable Regular Business Income			Alternative Business Income/(Loss)
(RBI)			(ABI)
Partnership ABC	$ 1,000			$ 1,000
NJ Rental Activity				($ 5,000)
Total	$ 1,000			($ 4,000)
Alternative Business
Loss Carryforward to Year 2				($ 4,000)
Business Increment				$ 1,000
(RBI-ABI)				(Note: If ABI is negative, use zero)
Year 1 phase-in				10%
percentage
Taxable Income				$ 100
Adjustment

The amount reportable as distributive share of partnership income on Harry's return is $ 1,000. The amount of rental income reportable on Harry's return is zero since losses are not recognized on the New Jersey return. Harry's taxable income adjustment in this year is $ 100.00, which represents 10 percent of the savings from netting between the business income categories. Since Harry has an alternative business loss, this amount becomes the alternative business loss carryforward to be included in Year 2 calculation of alternative business income/(loss).

Year 2	Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership ABC	$ 2,000	$ 2,000
NJ Rental Activity	($ 4,000)
Alternative Business
Loss Carryforward	($ 4,000)
Total	$ 2,000	($ 6,000)
Alternative Business
Loss Carryforward to Year 3	($ 6,000)
Business Increment	$ 2,000
(RBI-ABI)
(Note: If ABI is negative, use zero)
Year 2 phase-in	20%
percentage
Taxable Income	$ 400
Adjustment

The amount reportable as distributive share of partnership income on Harry's return is $ 2,000. The amount of rental income reportable on Harry's return is zero since losses are not recognized on the New Jersey return. Harry's taxable income adjustment in this year is $ 400.00, which represents 20 percent of the savings from netting between the business income categories and the carryforward of unused losses. Since Harry has an alternative business loss, this amount becomes the alternative business loss carryforward to be included in Year 3 calculation of alternative business income/(loss).

Year 3	Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership ABC	$ 4,000	$ 4,000
NJ Rental Activity	($ 4,000)
Alternative Business
Loss Carryforward	($ 6,000)
Total	$ 4,000	($ 6,000)
Alternative Business
Loss Carryforward	($ 6,000)
to Year 4
Business Increment	$ 4,000
(RBI-ABI)
(Note: If ABI is negative, use zero)
Year 3 phase-in	30%
percentage
Taxable Income	$ 1,200
Adjustment

The amount reportable as distributive share of partnership income on Harry's return is $ 4,000. The amount of rental income reportable on Harry's return is zero since losses are not recognized on the New Jersey return. Harry's taxable income adjustment in this year is $ 1,200, which represents 30 percent of the savings from netting between the business income categories and the carryforward of unused losses. Since Harry has an alternative business loss, this amount becomes the alternative business loss carryforward to be included in Year 4 calculation of alternative business income/(loss).

Year 4	Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership ABC	$ 5,000	$ 5,000
NJ Rental Activity	($ 3,000)
Alternative Business
Loss Carryforward	($ 6,000)
Total	$ 5,000	($ 4,000)
Alternative Business
Loss Carryforward to Year 5	($ 4,000)
Business Increment $ 5,000
(RBI-ABI)
(Note: If ABI is negative, use zero)
Year 4 phase-in	40%
percentage
Taxable Income	$ 2,000
Adjustment

The amount reportable as distributive share of partnership income on Harry's return is $ 5,000. The amount of rental income reportable on Harry's return is zero since losses are not recognized on the New Jersey return. Harry's taxable income adjustment in this year is $ 2,000, which represents 40 percent of the savings from netting between the business income categories and the carryforward of unused losses. Since Harry has an alternative business loss, this amount becomes the alternative business loss carryforward to be included in Year 5 calculation of alternative business income/(loss).

Year 5	Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership ABC	$ 6,000	$ 6,000
NJ Rental Activity	($ 2,000)
Alternative Business
Loss Carryforward	($ 4,000)
Total	$ 6,000	0
Alternative Business
Loss Carryforward to Year 6	0
Business Increment	$ 6,000
(RBI-ABI)
Year 5 phase-in	50%
percentage
Taxable Income	$ 3,000
Adjustment

The amount reportable as distributive share of partnership income on Harry's return is $ 6,000. The amount of rental income reportable on Harry's return is zero since losses are not recognized on the New Jersey return. Harry's taxable income adjustment in this year is $ 3,000, which represents 50 percent of the savings from netting between the business income categories and the carryforward of unused losses. Since Harry has alternative business income of zero, there is no alternative business loss carryforward to Year 6.

Example 3: Determining the portion of the business increment used as an adjustment to taxable income and alternative business loss carryforward amount for a taxpayer with business income more than business losses in a five-year period.

John is a New Jersey resident. John is a partner in New Jersey Partnership DEF and has a New Jersey rental property. His distributive share of partnership income/(loss) and rental income/(loss) are as follows:

Year 1	Year 2	Year 3	Year 4	Year 5
Partnership DEF	$ 1,000	$ 2,000	$ 4,000	$ 5,000	$ 6,000
NJ Rental Activity	($ 5,000)	($ 3,000)	($ 2,000)	($ 1,000)	($ 1,000)
Year 1	Reportable Regular Business Income (RBI)			Alternative Business Income/(Loss) (ABI)
Partnership DEF	$ 1,000			$ 1,000
NJ Rental Activity				($ 5,000)
Total	$ 1,000			($ 4,000)
Alternative Business
Loss Carryforward to Year 2				($ 4,000)
Business Increment				$ 1,000
(RBI-ABI)
			(Note: If ABI is negative, use zero)
Year 1 phase-in				10%
percentage
Taxable Income				$ 100
Adjustment

The amount reportable as distributive share of partnership income on John's return is $ 1,000. The amount of rental income reportable on John's return is zero since losses are not recognized on the New Jersey return. John's taxable income adjustment in this year is $ 100.00, which represents 10 percent of the savings from netting between the business income categories. Since John has an alternative business loss, this amount becomes the alternative business loss carryforward to be included in Year 2 calculation of alternative business income/(loss).

Year 2	Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership DEF	$ 2,000	$ 2,000
NJ Rental Activity	($ 3,000)
Alternative Business
Loss Carryforward	($ 4,000)
Total	$ 2,000	($ 5,000)
Alternative Business
Loss Carryforward to Year 3	($ 5,000)
Business Increment	$ 2,000
(RBI-ABI)
(Note: If ABI is negative, use zero)
Year 2 phase-in	20%
percentage
Taxable Income	$ 400
Adjustment

The amount reportable as distributive share of partnership income on John's return is $ 2,000. The amount of rental income reportable on John's return is zero since losses are not recognized on the New Jersey return. John's taxable income adjustment in this year is $ 400.00, which represents 20 percent of the savings from netting between the business income categories and the carryforward of unused losses. Since John has an alternative business loss, this amount becomes the alternative business loss carryforward to be included in Year 3 calculation of alternative business income/(loss).

Year 3	Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership DEF	$ 4,000	$ 4,000
NJ Rental Activity	($ 2,000)
Alternative Business
Loss Carryforward	($ 5,000)
Total	$ 4,000	($ 3,000)
Alternative Business
Loss Carryforward to Year 4	($ 3,000)
Business Increment	$ 4,000
(RBI-ABI)
(Note: If ABI is negative, use zero)
Year 3 phase-in	30%
percentage
Taxable Income	$ 1,200
Adjustment

The amount reportable as distributive share of partnership income on John's return is $ 4,000. The amount of rental income reportable on John's return is zero since losses are not recognized on the New Jersey return. John's taxable income adjustment in this year is $ 1,200, which represents 30 percent of the savings from netting between the business income categories and the carryforward of unused losses. Since John has an alternative business loss, this amount becomes the alternative business loss carryforward to be included in Year 4 calculation of alternative business income/(loss).

Year 4	Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership DEF	$ 5,000	$ 5,000
NJ Rental Activity	($ 1,000)
Alternative Business
Loss Carryforward	($ 3,000)
Total	$ 5,000	$ 1,000
Alternative Business
Loss Carryforward to Year 5	0
Business Increment	$ 4,000
(RBI-ABI)
(Note: If ABI is negative, use zero)
Year 4 phase-in	40%
percentage
Taxable Income	$ 1,600
Adjustment

The amount reportable as distributive share of partnership income on John's return is $ 5,000. The amount of rental income reportable on John's return is zero since losses are not recognized on the New Jersey return. John's taxable income adjustment in this year is $ 1,600, which represents 40 percent of the savings from netting between the business income categories and the carryforward of unused losses. Since John has alternative business income this year, there is no alternative business loss carryforward to Year 5.

Year 5	Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership DEF	$ 6,000	$ 6,000
NJ Rental Activity	($ 1,000)
Alternative Business
Loss Carryforward	0
Total	$ 6,000	$ 5,000
Alternative Business
Loss Carryforward to Year 6	0
Business Increment	$ 1,000
(RBI-ABI)
Year 5 phase-in	50%
percentage
Taxable Income	$ 500
Adjustment

The amount reportable as distributive share of partnership income on John's return is $ 6,000. The amount of rental income reportable on John's return is zero since losses are not recognized on the New Jersey return. John's taxable income adjustment in this year is $ 500.00, which represents 50 percent of the savings from netting between the business income categories. Since John has alternative business income this year, there is no alternative business loss carryforward to Year 6.

Example 4: Determining the portion of the business increment used as an adjustment to taxable income and alternative business loss carryforward amount and credit for taxes paid to other jurisdictions for a taxpayer with three business entities.

Tom is a full-year New Jersey resident with a filing status of single. Tom is a partner in Partnership A with income of $ 300,000, Partnership B with a loss of ($ 100,000) and a shareholder in S Corporation Z with a loss of ($ 50,000). The income from Partnership A is also subject to tax by New York.

Determining the Taxable Income Adjustment:

Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership A	$ 300,000	$ 300,000
Partnership B	($ 100,000)	($ 100,000)
S Corporation Z	0	($ 50,000)
Total	$ 200,000	$ 150,000
Alternative Business
Loss Carryforward	0
Business Increment	$ 50,000
(RBI-ABI)
Year 1 phase-in	10%
percentage
Taxable Income Adjustment	$ 5,000

The amount reportable as distributive share of partnership income on Tom's return is $ 200,000. The amount reportable as net pro rata share of S corporation income on Tom's return is zero since losses are not recognized on the New Jersey return. Tom's taxable income adjustment in this year is $ 5,000, which represents 10 percent of the savings from netting between the business income categories. Since Tom has alternative business income, there is no alternative business loss carryforward to Year 2.

Determining the Credit for Taxes Paid to Other Jurisdictions:

Income Subject to Tax New Jersey	New York	Income Taxed by Both
Partnership A	$ 300,000	$ 300,000	$ 300,000
Partnership B	($ 100,000)	($ 100,000)
S Corporation Z	0
Income Subject to Tax Before Exemptions and	$ 200,000	$ 300,000	$ 200,000
Deductions Less Exemptions	($ 1,000)
Taxable Income	$ 199,000
Less Taxable Income
Adjustment	($ 5,000)
New Jersey Taxable	$ 194,000
Income
Tax	$ 10,232	$ 21,153	$ 14,101
Numerator of the	$ 200,000
credit calculation
Credit Allowed	$ 10,232

Since the total partnership income taxed by New Jersey is less than the amount taxed by New York, the numerator of the credit calculation is limited to $ 200,000, which is the amount of income taxed by both jurisdictions. The credit allowed is limited to the $ 10,232 of New Jersey tax paid on the $ 200,000 of partnership income since this amount is less than the $ 14,101 of New York taxes paid on the same income.

Example 5: Determining the portion of the business increment used as an adjustment to taxable income and the alternative business loss carryforward amount for a taxpayer with multiple interests in partnerships where there is also a disposition of one of the partnership interests.

Bob moved into New Jersey in 2016 and is a partner in three partnerships, Partnerships A, B, and C. His beginning New Jersey basis in each of the partnerships is his ending Federal basis prior to moving to New Jersey. His distributive share of partnership income/(loss) for tax years 2016 through 2020 is as follows:

Year 2016	Year 2017	Year 2018	Year 2019	Year 2020
Partnership A	$ 10,000	$ 10,000	$ 10,000	$ 10,000	$ 10,000
Partnership B	$ 10,000	$ 10,000	$ 10,000	$ 10,000	$ 10,000
Partnership C	($ 20,000)	($ 40,000)	($ 5,000)	($ 60,000)

In tax year 2019, Bob sells his interest in Partnership C for $ 150,000.

Year 2016	Reportable Regular	Alternative Business
Business Income (RBI)	Income/(Loss) (ABI)
Partnership Income	0	0
Business Increment (RBI - ABI)	0	(Note: If ABI is negative, use zero)
Phase-in percentage	50%
Taxable Income	0
Adjustment

Calculation of New Jersey Partnership Basis:

Partnership A
Beginning Federal Basis	$ 20,000
Current Year Income	$ 10,000
Ending New Jersey Basis	$ 30,000
Partnership B
Beginning Federal Basis	$ 20,000
Current year income	$ 10,000
Ending New Jersey Basis	$ 30,000
Partnership C
Beginning Federal Basis	$ 200,000
Current Year Usable Loss	($ 20,000)
Ending New Jersey Basis	$ 180,000

Note: Only losses used by Partnership C in reporting Regular Business Income reduce New Jersey basis each year.

Year 2017	Reportable Regular	Alternative Business
Business Income (RBI)	Income/(Loss) (ABI)
Partnership Income	0	($ 20,000)
Business Increment (RBI	0	(Note: If ABI is
- ABI)	negative, use zero)
Phase-in percentage	50%
Taxable Income	0
Adjustment
Alternative Business	($ 20,000)
Loss Carryforward to 2018

Calculation of New Jersey Partnership Basis:

Partnership A
Beginning New Jersey Basis	$ 30,000
Current Year Income	$ 10,000
Ending New Jersey Basis	$ 40,000
Partnership B
Beginning New Jersey Basis	$ 30,000
Current year income	$ 10,000
Ending New Jersey Basis	$ 40,000
Partnership C
Beginning New Jersey Basis	$ 180,000
Current Year Usable Loss	($ 20,000)
Ending New Jersey Basis	$ 160,000

Note: Only losses used by Partnership C in reporting Regular Business Income reduce New Jersey basis each year.

Year 2018	Reportable Regular	Alternative Business
Business Income (RBI)	Income/(Loss) (ABI)
Partnership Income	$ 15,000	$ 15,000
Alternative Business	($ 20,000)
Loss Carryforward	($ 5,000)
Business Increment (RBI - ABI)	$ 15,000	(Note: If ABI is negative, use zero)
Phase-in percentage	50%
Taxable Income	$ 7,500
Adjustment
Alternative Business	($ 5,000)
Loss Carryforward to 2019

Calculation of New Jersey Partnership Basis:

Partnership A
Beginning New Jersey Basis	$ 40,000
Current Year Income	$ 10,000
Ending New Jersey Basis	$ 50,000
Partnership B
Beginning New Jersey Basis	$ 40,000
Current year income	$ 10,000
Ending New Jersey Basis	$ 50,000
Partnership C
Beginning New Jersey Basis	$ 160,000
Current Year Usable Loss	($ 5,000)
Ending New Jersey Basis	$ 155,000

Note: Only losses used by Partnership C in reporting Regular Business Income reduce New Jersey basis each year.

Year 2019	Reportable Regular	Alternative Business
Business Income (RBI)	Income/(Loss) (ABI)
Partnership Income	0	($ 40,000)
Alternative Business	($ 5,000)
Loss Carryforward	($ 45,000)
Business Increment (RBI - ABI)	0	(Note: If ABI is negative, use zero)
Phase-in percentage	50%
Taxable Income	0
Adjustment
Alternative Business	($ 45,000)
Loss Carryforward to 2020

Calculation of New Jersey Partnership Basis:

Partnership A
Beginning New Jersey Basis	$ 50,000
Current Year Income	$ 10,000
Ending New Jersey Basis	$ 60,000
Partnership B
Beginning New Jersey Basis	$ 50,000
Current year income	$ 10,000
Ending New Jersey Basis	$ 60,000
Partnership C
Beginning New Jersey Basis	$ 155,000
Current Year Usable Loss	($ 20,000)
Ending New Jersey Basis	$ 135,000

Taxpayer is disposing of his interest in Partnership C for $ 150,000.

Calculation of Gain or Loss on Disposition:

Sales Price	$ 150,000
New Jersey Basis	$ 135,000
New Jersey Gain on Disposition	$ 15,000

The taxpayer's New Jersey basis is not affected by any previously reported taxable income adjustment or alternative business loss carryforward. The alternative business loss carryforward is not reduced when there is a disposition of an entity.

Year 2020	Reportable Regular	Alternative Business
Business Income (RBI)	Income/(Loss) (ABI)
Partnership Income	$ 20,000	$ 20,000
Alternative Business	($ 45,000)
Loss Carryforward	($ 25,000)
Business Increment (RBI - ABI)	$ 20,000	(Note: If ABI is negative, use zero)
Phase-in percentage	50%
Taxable Income	$ 10,000
Adjustment
Alternative Business	($ 25,000)
Loss Carryforward to 2021

Calculation of New Jersey Partnership Basis:

Partnership A
Beginning New Jersey Basis	$ 60,000
Current Year Income	$ 10,000
Ending New Jersey Basis	$ 70,000
Partnership B
Beginning New Jersey Basis	$ 60,000
Current year income	$ 10,000
Ending New Jersey Basis	$ 70,000

Example 6: Determining the portion of the business increment used as an adjustment to taxable income and alternative business loss carryforward amount for a nonresident taxpayer with businesses both inside and outside of New Jersey.

John is a single taxpayer that has always been a nonresident of New Jersey with business income and loss earned both inside and outside of New Jersey. His distributive share of partnership income and rental income/(loss) are as follows:

Year 1 Income	Year 2 Income	Year 3 Income
Everywhere	NJ Sources	Everywhere	NJ Sources	Everywhere	NJ Sources
Partnership A	$ 40,000	$ 40,000	$ 25,000	$ 25,000	$ 45,000	$ 45,000
Partnership B	$ 30,000	$ 15,000	$ 15,000
Non-NJ	($ 20,000)	($ 50,000)	($ 35,000)
Rental Loss

YEAR 1:

Determining the Taxable Income Adjustment:

Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership Income	$ 70,000	$ 70,000
Rental Income	0	($ 20,000)
Total	$ 70,000	$ 50,000
Alternative Business
Loss Carryforward
to Year 2	0
Business Increment	$ 20,000
(RBI-ABI)	(Note: If ABI is negative, use zero)
Year 1 phase-in percentage	10%
Taxable Income Adjustment	$ 2,000

The amount reportable as distributive share of partnership income in the Income Everywhere column is $ 70,000 and the amount reported in the NJ column is $ 40,000. The amount reportable as net income from rents is zero since losses are not recognized on the New Jersey return. John's taxable income adjustment in this year is $ 2,000, which represents 10 percent of the savings from the netting between the business income categories in the Income Everywhere column only. Since John has alternative business income, there is no alternative business loss carryforward to Year 2.

Determining the New Jersey Tax:

Income Everywhere	NJ Income
(Column A)	(Column B)
Gross Income	$ 70,000	$ 40,000
Total Exemption Amount	($ 1,000)
Taxable Income	($ 2,000)
Adjustment
Taxable Income	$ 67,000
Tax on Taxable Income	$ 2,211
Income percentage
(Col. B Gross Income/	57.14%
Col. A Gross
Income)
New Jersey Tax
(Tax on Taxable Income	$ 1,263
x Income percentage)

YEAR 2:

Determining the Taxable Income Adjustment:

Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership Income	$ 40,000	$ 40,000
Rental Income	0	($ 50,000)
Total	$ 40,000	($ 10,000)
Alternative Business
Loss Carryforward to
Year 3	($ 10,000)
Business Increment	$ 40,000
(RBI-ABI)	(Note: If ABI is negative, use zero)
Year 2 phase-in percentage	20%
Taxable Income Adjustment	$ 8,000

The amount reportable as distributive share of partnership income in the Income Everywhere column is $ 40,000 and the amount reported in the NJ column is $ 25,000. The amount reportable as net income from rents is zero since losses are not recognized on the New Jersey return. John's taxable income adjustment in this year is $ 8,000, which represents 20 percent of the savings from the netting between the business income categories in the Income Everywhere column only. Since John has an alternative business loss, this amount becomes the loss carryforward to be included in Year 2 calculation of alternative business income/(loss).

Determining the New Jersey Tax:

Income Everywhere (Column A)	NJ Income (Column B)
Gross Income	$ 40,000	$ 25,000
Total Exemption Amount	($ 1,000)
Taxable Income	($ 8,000)
Adjustment
Taxable Income	$ 31,000
Tax on Taxable Income	$ 473
Income percentage
(Col. B Gross Income/	62.50%
Col. A Gross
Income)
New Jersey Tax
(Tax on Taxable Incomex Income percentage)	$ 296

YEAR 3:

Determining the Taxable Income Adjustment:

Reportable Regular Business Income (RBI)	Alternative Business Income/(Loss) (ABI)
Partnership Income	$ 60,000	$ 60,000
Rental Income	0	($ 35,000)
Alternative Business	($ 10,000)
Loss
Carryforward
Total	$ 60,000	$ 15,000
Alternative Business
Loss Carryforward to
Year 3	0
Business Increment	$ 45,000
(RBI-ABI)	(Note: If ABI is negative, use zero)
Year 3 phase-in percentage	30%
Taxable Income Adjustment	$ 13,500

The amount reportable as distributive share of partnership income in the Income Everywhere column is $ 60,000 and the amount reported in the NJ column is $ 45,000. The amount reportable as net income from rents is zero since losses are not recognized on the New Jersey return. John's taxable income adjustment in this year is $ 13,500, which represents 30 percent of the savings from the netting between the business income categories in the Income Everywhere column only. Since John has alternative business income, there is no alternative business loss carryforward to Year 4.

Determining the New Jersey Tax:

Income Everywhere	NJ Income
(Column A)	(Column B)
Gross Income	$ 60,000	$ 45,000
Total Exemption Amount	($ 1,000)
Taxable Income	($ 13,500)
Adjustment
Taxable Income	$ 45,500
Tax on Taxable Income	$ 1,021
Income percentage
(Col. B Gross Income /	75%
Col. A Gross Income)
New Jersey Tax
(Tax on Taxable Income x Income percentage)	$ 766

N.J. Admin. Code § 18:35-2.8

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