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The why part of your question also addresses if you are required to file a NJ return.
Nonresidents who receive income from New Jersey sources (a rental property located in the state of NJ is NJ sourced income) and who have total income from all sources (both inside and outside New Jersey) that exceeds the filing threshold amount for their filing status must file a New Jersey nonresident income tax return. The filing threshold amount is $20,000 for those who file as married/CU couple filing joint return, head of household, or qualifying widow(er)/surviving CU partner. The threshold is $10,000 for those filing married/CU partner filing separately or single.
NJ will only tax you on the rental property if you do have a net income form the rental. Many rentals only generate losses so you may not have actual tax to pay but the requirement is there to report it by filing a nonresident return.
Your NY resident return just includes the rental and would allow for a tax credit if there is NJ tax to pay on income form the rental.
Your federal Schedule E will show you if you have income or loss on the rental. This is used to report for states.
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Yes, you are required to file a NJ nonresident return. You will be liable for tax on the amount that is over your deductions and exemption for NJ.
NY will allow a credit though for that tax.
If you were a full-year or part-year resident of New York State and you had income sourced to and taxed by another state, a local government within another state, or the District of Columbia, you may claim a credit against your New York State tax.
This credit is allowable only for the portion of the tax that applies to income sourced to and taxed by the other taxing authority while you were a New York State resident. A Form IT-112-R is used.
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