Real Estate Partnerships And State Income Tax – Nasty Surprises

Coordinating this with your federal return is a little tricky. If you are a partner in a partnership your basis in your partnership interest is being reduced by losses. Someday, if you are lucky or good, your ship might come in. The positive number that flows through on your federal return might be larger due to those past losses that New Jersey did not give you credit for. N.J.S.A. 54A:5-2 mandates that any losses in any category of income incurred in a given taxable year must be applied as a deduction against income in that same category in the same taxable year. Thus, losses may not be carried forward into taxable years in which they were not incurred. So it seems like you are out of luck. There is a glimmer of hope though. However, the New Jersey Supreme Court held that the Director cannot use a federal adjusted basis if it results in a go here now taxpayer being taxed on a return of capital.
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