Alloy Alert - Offset of NJ Business Gains/Losses and Loss Carryover Enacted

A new law creates an alternative business calculation under the New Jersey gross (personal) income tax as a mechanism that permits taxpayers who generate income from different types of business entities to offset gains from one type of business with losses from another and permits taxpayers to carry forward an alternative business loss for a period of up to 20 taxable years. Currently, New Jersey only allows losses from one category of income to offset gain from the same category of income and does not allow any loss carryover.

Beginning with the 2012 tax year, taxpayers will be permitted to net gains and losses derived from one or more of the following business-related categories of gross income: net profits from business; net gains or net income derived from or in the form of rents, royalties, patents, and copyrights; distributive share of partnership income; and net pro rata share of S corporation income. Also, a taxpayer who sustains a loss from a sole proprietorship may apply that loss against income derived from a partnership, subchapter S corporation, or rents and royalties, but may not apply losses from those categories to income that is not related to the taxpayer's conduct of the taxpayer's own business, including salaries and wages, the disposition of property, and interest and dividends.

The tax savings will be phased in over five years beginning with the 2012 tax year on the basis of a "business increment." The business increment is determined by subtracting alternative business income from regular business income.

If you think you may be able to benefit from the new business loss deduction and carryover rules, we can assist you in making that determination and preparing you to take the deductions. Please call to arrange an appointment at your earliest convenience.

Reprinted from CCH Client Letter Toolkit  

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