Schedule E · Form 4562 · NJ-1040
Rental Property Tax Preparation in New Jersey
Depreciation, repairs versus improvements, passive loss limits, and New Jersey rules that do not follow the federal ones. We prepare rental returns for landlords with one unit or several, in New Jersey and out of state, and we keep the depreciation right from the year you buy to the year you sell.
Monday to Friday 10am to 6pm, weekends 11am to 5pm.
What we prepare
Every form a rental touches.
Schedule E
Rental income and expenses
Each property on its own line, with rents, mortgage interest, property taxes, insurance, repairs and management.
Form 4562
Depreciation
The building, improvements, appliances and furniture, each on its own schedule, carried year to year.
Form 8582
Passive loss limits
Losses allowed this year, and losses carried forward until you can use them.
Form 4797
The year you sell
Gain, depreciation recapture and the release of any losses that were held back.
State returns
New Jersey and out-of-state rentals
The NJ-1040, plus nonresident returns where an out-of-state rental is located.
Depreciation and repairs
The numbers that follow you until you sell.
Land is not depreciable, so the purchase price is split between land and building. Residential rental buildings are depreciated over 27.5 years, commercial buildings over 39 years, both straight line.
| Purchase price, with closing costs | $450,000 |
| Land, not depreciable | ($120,000) |
| Building | $330,000 |
| Yearly depreciation: $330,000 ÷ 27.5 | $12,000 |
The first and last years are partial, under the mid-month convention. Appliances, carpeting and land improvements have shorter lives. Federal law now allows 100% bonus depreciation for that property when it is acquired and placed in service after January 19, 2025. New Jersey does not allow bonus depreciation, so the New Jersey numbers are kept on a separate schedule.
- Repairs keep the property working and are deducted in the year paid: fixing a leak, patching drywall, servicing the boiler.
- Improvements make it better, restore it or adapt it to a new use, and are depreciated: a new roof, a kitchen renovation, a new heating system.
- The de minimis safe harbor lets you deduct items costing up to $2,500 per invoice or item, with an election attached to each year’s return.
Use our rental property expense checklist to gather the year.
Passive loss rules
A rental loss is not always deductible this year.
Rentals are passive. If you actively participate, such as approving tenants and repairs, you can deduct up to $25,000 of rental losses against other income. The allowance shrinks by 50 cents for every dollar of modified adjusted gross income over $100,000 and is gone at $150,000. At $130,000, for example, the most you can deduct is $10,000. Losses you cannot use carry forward until you have passive income or sell the property.
- $100,000 or lessUp to $25,000
- $130,000Up to $10,000
- $150,000 or moreNone this year. The loss carries forward
Short-term and vacation rentals
Different rules for shorter stays.
Short-term rentals
If the average guest stay is 7 days or less, the property is not a rental activity under the passive loss rules. A loss can offset other income only if you materially participate.
Hotel-like services
Provide significant services such as maid service and the activity goes on Schedule C, not Schedule E.
Your own use
Use the home yourself more than the greater of 14 days or 10% of the days rented at a fair price, and expenses are limited to rental income.
Rented fewer than 15 days
If you also live in the home, rent for fewer than 15 days in a year is not reported, and the rental expenses are not deducted.
New Jersey rules
Where the state return parts ways.
Rental losses stay in their category
New Jersey taxes net rental income as its own category. A rental loss cannot reduce wages, interest or other income on the NJ-1040.
The alternative business calculation
New Jersey lets part of a business or rental loss offset income from your other businesses and carries an unused loss forward. Starting in 2026, that benefit is cut for income over $500,000 and ends above $1 million.
No bonus depreciation
New Jersey does not follow federal bonus depreciation, so the state and federal depreciation differ until the property is sold.
Out-of-state rentals
A rental in Pennsylvania, New York or another state with an income tax means a nonresident return there and a credit on the NJ-1040.
New Jersey also taxes the gain on a sale at the same rates as wages. See how New Jersey differs from federal.
Selling, exchanging and LLCs
The year you sell is the most expensive one to get wrong.
Depreciation recapture
The gain from depreciation you took, or could have taken, is unrecaptured section 1250 gain, taxed at up to 25% federally. The rest is long-term capital gain.
Suspended losses
Losses held back under the passive rules are released when you sell your entire interest to an unrelated buyer in a taxable sale.
1031 exchanges
Real property held for investment can be exchanged for other real property. You have 45 days to identify the replacement and 180 days, or the return due date if earlier, to close.
Rentals in an LLC
A single-member LLC reports on Schedule E as before. A multi-member LLC files Form 1065 and New Jersey’s NJ-1065, and each owner gets a K-1. We can keep the books for each property.
Common questions
Questions landlords ask.
Can my rental loss offset my wages?
Federally, up to $25,000 a year if you actively participate and your modified adjusted gross income is $100,000 or less, phasing out by $150,000. Losses you cannot use carry forward. New Jersey is stricter: a rental loss never offsets wages.
What if I never claimed depreciation?
Your basis is still reduced by the depreciation you could have claimed when you sell. Often the missed depreciation can be claimed through an accounting method change on a current return instead of amending old ones.
Is a new roof a repair?
No. A roof replacement is an improvement and is depreciated. Patching a leak is a repair and is deducted in the year paid.
Do I need to file in the state where my rental is?
Usually, if that state has an income tax. You file a nonresident return there, and New Jersey gives you a credit for that state's tax on the same income.
Does my Airbnb count as a rental?
If the average guest stay is 7 days or less, it is not a rental activity under the passive loss rules, and the loss can only offset other income if you materially participate. If you provide hotel-like services such as maid service, it goes on Schedule C instead of Schedule E.
Should my rental be in an LLC?
That is mostly a liability question for your attorney. For tax, a single-member LLC changes nothing on your return. A multi-member LLC files a Partnership return.
Own a rental? Start here.
Send last year’s return and the closing statement if you bought this year, and we will check the depreciation. The first consultation is free.