I am completing an Estate Income Tax return (Federal 1041 and NJ 1041) for a family member with TurboTax Business, and I just went through our personal taxes using TurboTax to see the effect of the Estate Income that passed through to my spouse as sole Beneficiary. The only Estate Income was the proceeds from the sale of the house, so entirely Long Term Capital Gains. The LTCG were significant because there was a delay in selling the house, during which time the value went up considerably. I did some Tax Loss Harvesting in 2023, leaving about a $20,000 loss to work with on our Federal 1040 and NJ 1040, to somewhat mitigate the effect of the LTCG.
The Federal K-1 lists the Estate Income as 4a Net Long Term Capital Gain, which is entered on Federal Schedule D on Line 12, and then totaled with the tax harvesting loss, which was helpful.
But I was unpleasantly surprised to find that the NJ K-1 lists the Estate Income proceeds to the Beneficiary as "Income" (not classified as Capital Gains) that goes on the NJ 1040 Line 26 as Other Income - not on the Schedule NJ-DOP Form, Net Gains or Income from Disposition of Property (similar to Schedule D) as Capital Gains - so there is NO opportunity to apply the losses. That is how TurboTax proceeded. If you could put the NJ K-1 Income on the Schedule NJ-DOP Form on Line 3, Other Net Gains, you could total it with the losses. That's how I thought it would work, just like the Federal 1040 Schedule D.
But the Instructions for NJ 1040 clearly state, "Do not include on Schedule NJ-DOP, ... Gains/losses from the disposition of property owned by an Estate or Trust (other than a Grantor Trust). Report on Line 26." And from NJ GIT-12 Estates and Trusts: "The income distributed to a beneficiary is reported on the beneficiary’s Income Tax return in the category 'Income From Estates and Trusts,' which is part of the 'Other' income line."
Therefore, that $20,000 loss just sinks into the ether because NJ does not allow you to apply it to income, or to carry it over. I had no idea that I would not be able to apply it to the NJ capital gains from the Estate's sale of the house.
So, just FYI for NJ folks ... one more Jersey TLH pothole, I guess.
The Federal K-1 lists the Estate Income as 4a Net Long Term Capital Gain, which is entered on Federal Schedule D on Line 12, and then totaled with the tax harvesting loss, which was helpful.
But I was unpleasantly surprised to find that the NJ K-1 lists the Estate Income proceeds to the Beneficiary as "Income" (not classified as Capital Gains) that goes on the NJ 1040 Line 26 as Other Income - not on the Schedule NJ-DOP Form, Net Gains or Income from Disposition of Property (similar to Schedule D) as Capital Gains - so there is NO opportunity to apply the losses. That is how TurboTax proceeded. If you could put the NJ K-1 Income on the Schedule NJ-DOP Form on Line 3, Other Net Gains, you could total it with the losses. That's how I thought it would work, just like the Federal 1040 Schedule D.
But the Instructions for NJ 1040 clearly state, "Do not include on Schedule NJ-DOP, ... Gains/losses from the disposition of property owned by an Estate or Trust (other than a Grantor Trust). Report on Line 26." And from NJ GIT-12 Estates and Trusts: "The income distributed to a beneficiary is reported on the beneficiary’s Income Tax return in the category 'Income From Estates and Trusts,' which is part of the 'Other' income line."
Therefore, that $20,000 loss just sinks into the ether because NJ does not allow you to apply it to income, or to carry it over. I had no idea that I would not be able to apply it to the NJ capital gains from the Estate's sale of the house.
So, just FYI for NJ folks ... one more Jersey TLH pothole, I guess.
Statistics: Posted by LK2012 — Sat Mar 23, 2024 11:10 pm — Replies 0 — Views 57