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It is not unusual that an individual has a different basis for Federal and State purposes. Many states do not use the same depreciation methods, some do not allow the Homeowner's exemption, or, as in your case, §1031 exchanges. Many states, including New Jersey, put in exceptions to the like-kind exchanges, because too many people were giving up property in New Jersey, where the tax rate is fairly high, and replacing it with property in other states where the tax rates
are lower. These are often referred to as "claw-back" provisions.
I called a friend of mine at the NJ Department of Revenue. She told me that gains and losses are reported on Line 57 of the Form NJ-1040NR. The information is taken off the Federal Form 8949, with the exception that the basis information, which is reported in column E, is your adjusted basis FOR NEW JERSEY PURPOSES. It is NOT your Federal basis.
Normally, this adjustment is calculated as a depreciation adjustment on the Gross Income Tax
Depreciation Adjustment Worksheet GIT-DEP, however in your case, there is no line or provision for reporting different basis due to the §1031 Like-Kind Exchange.
I would therefore make a careful calculation for your records, so if the NJ Revenue Department should ever question the amount (which is unlikely in the first place) you will have ample evidence of the correctness of the calculation.
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