Thursday, January 24, 2008


Here are some quick answers to some quick questions:

Q. You own a property in another state as a 2nd home that you use for yourself, so you can not do a 1031 exchange. You sell the property for a profit. Of course, you pay capital gains on your federal return. Do you pay capital gains in NJ even though the property is not in NJ?

A. I am assuming that you are a resident of New Jersey.

A New Jersey resident is taxed on all income earned during the year from all sources (except statutorily tax-exempt income), regardless of where it is earned. As a general rule, your resident state pretty much taxes the same money that the federal government taxes, with a few minor adjustments depending on the state tax law.

If you are a NJ resident who owns vacation or investment property in another state and you sell that property at a gain, that gain is taxed by the State of New Jersey and it must be reported on the NJ-1040. If you pay tax on the gain to the state in which the property is located as a non-resident you can claim a credit for these non-resident taxes on the NJ-1040.

Q. I am organizing a client meeting where the subject will be stock market investing. I have read conflicting opinions on how much, if any of the cost incurred by the attendees will be tax deductible. The meeting will be aboard an Alaskan cruise ship. What are the parameters for someone to be able to write off some or all of the costs of an investment cruise?
A. According to IRS Publication 463 (Travel, Entertainment, Gift and Car Expenses) “You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships. All ships that sail are considered cruise ships.
You can deduct these expenses only if all of the following requirements are met -
1. The convention, seminar, or meeting is directly related to your trade or business.
2. The cruise ship is a vessel registered in the United States.
3. All of the cruise ship's ports of call are in the United States or in possessions of the United States.
4. You attach to your return a written statement signed by you that includes information about:
a. The total days of the trip (not including the days of transportation to and from the cruise ship port),
b. The number of hours each day that you devoted to scheduled business activities, and
c. A program of the scheduled business activities of the meeting.
5. You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes:
a. A schedule of the business activities of each day of the meeting, and
b. The number of hours you attended the scheduled business activities.
Pub 463 also states, "If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses.”
Q. I just read your article on donating vehicles. We are a charity organization, the Foundation for the college, and someone wants to donate a vehicle to the college. Do you know how long the charity has to hold onto the vehicle before they can sell it? Is there a holding period, or can the organization sell it right away?
A. It has been some time since I have been involved with non-profit organizations. My experience pre-dates the new rules for donating a car to charity.
I am not aware of any required “holding period”. As far as I know you can sell it the day after you receive it. I could not find anything on the subject in
Publication 526 (Charitable Contributions). The only rules I know are the requirements to provide the donor of the vehicle with a completed Form 1098-C that indicates the gross proceeds from the sale.
Q. Recently someone advised me of a NJ State tax: When you sell your primary residence and then move out of state, NJ residents must pay an Exit Tax of at least 2%. Is this true?

A. I think this is what you are talking about -

NJ Law requires that nonresident individuals who sell or transfer real property located in New Jersey make a NJ Gross Income Tax estimated tax payment on the gain as a condition of the recording of the deed.

The tax payment is determined by multiplying the gain on the sale by the top NJ tax rate of 8.97%. The payment cannot be less than 2% of the “consideration” received – or gross proceeds from the sale.

A resident taxpayer who will file a NJ-1040 for the year is exempt from making the estimated tax payment.

No payment is required if the property being sold or transferred was used exclusively as the seller’s personal residence and is exempt from federal taxes under Internal Revenue Code Section 121.

This is not an “exit tax”, but an estimated tax payment. The purpose is to make sure that the nonresident individual files a Form NR-1040 to report the sale and pay tax on the gain. Because the required estimated tax payment is made at the highest tax rate, the individual should receive be entitled to a refund on the NJ-1040.

BTW- I have decided how to deal with inappropriate ASK THE TAX PRO question submissions from now on – just ignore and delete them. I am not going to rant about them anymore.

One recent submission ended with the comment – “an email response would be great”. I am sure it would, but don’t hold your breath! I will answer the question, if appropriate, in an ASK THE TAX PRO posting, which is generally done only once a week, when I get to it. There may be a half a dozen questions in the “queue” in front of you. I will not drop everything and provide an immediate email response. I will email the submitter on the morning that the question is answered in an ASK THE TAX PRO posting.


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