If you own an entire property in New Jersey or a portion of a property in New Jersey but live outside the state, there are several important things you need to recognize about the process of passing this on to someone else. First of all, New Jersey does not have a state gift tax.
At the federal level in 2020, however, there is an annual federal gift tax exclusion of $15,000, meaning that any gifts extending beyond that amount require you to file a gift tax return for the portion above $15,000. It’s also important to recognize your overall lifetime estate tax exemption which is $11.58 million for individuals in 2020. No gift tax would be incurred as long as you do not intend to make gifts greater than that amount.
Although it seems like with little tax implications there is good reason to make this gift during the course of your life, the purchaser’s cost will carry over to the recipient of a gift, meaning that your child could inherit the property with a cost basis equal to whatever you paid for that share of the property or the property itself. If the property has increased in value significantly since you purchased it, this means that you could be subjecting your child inadvertently to a large capital gain tax.
Some other states, such as Pennsylvania will have a reciprocal income tax agreement with New Jersey but this does not extend to income that goes beyond compensation. For more information about some of the challenges associated with passing on property, schedule a consultation with a trusted New Jersey lawyer today.