The purpose of estate tax planning is to maximize the assets you pass on to future generations by minimizing gift and estate taxes. Estate-tax strategies revolve around the use of irrevocable trusts. This article discusses the most common types of irrevocable trusts that are used to minimize gift and estate […]
If you have cashed out capital gains in New Jersey, you know you’ll lose something to taxes. But how much? It’s important to understand your capital gains tax liability and how it will impact your financial future, not least because that knowledge will empower you to take action to reduce your tax bill today.
In this article, we’ll explain what capital gains are and how they are taxed in New Jersey.
We’ll also show you different tax-planning strategies that can significantly reduce your state capital gains tax:
So let’s dive in!
A capital gain is a capital asset’s increase in value from the value at which it was purchased. Capital assets include stocks, real estate, crypto, and private businesses – in short, any significant property that could gain or lose value over time.
Capital gains can be realized or unrealized. Realized capital gains are gains that you have captured by selling the asset. Unrealized gains, by contrast, refer to the increase in the value of an investment that you have not yet sold. For instance, if you hold stock that increases in value, but you haven’t sold it yet, that is considered an unrealized capital gain. In general, you will not pay taxes until you cash out or “realize” the gains.
There are two types of realized capital gains:
Capital gains are not taxed until they are realized, meaning that even if your Apple stock has increased 50x from the day you bought the stock, you won’t owe any capital gains taxes until you sell the stock. Of course, once you do sell the stock, you will face federal and (depending on the state) state taxes. The tax rate will vary depending on your income and the type of asset you sold, but the rates are generally progressive, so individuals with higher incomes tend to face higher capital gains tax rates. Let’s look at how federal and state governments tax capital gains in more depth.
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Short- and long-term capital gains are taxed differently; assets held for one year or less are taxed at ordinary income rates, while longer-held assets are taxed at lower rates.
The short-term capital gains schedule matches the schedule for ordinary income, and your marginal and effective rates depend on your income and marital status, as shown below:
| Taxable income (Single Filers) | Taxable income (Married Filing Jointly) | Tax Rate |
|---|---|---|
| $0 to $11,925 | $0 to $23,850 | 10% |
| $11,925 to $48,475 | $23,850 to $96,950 | 12% |
| $48,475 to $103,350 | $96,950 to $206,700 | 22% |
| $103,350 to $197,300 | $206,700 to $394,600 | 24% |
| $197,300 to $250,525 | $394,600 to $501,050 | 32% |
| $250,525 to $626,350 | $501,050 to $751,600 | 35% |
| $626,350 or more | $751,600 or more | 37% |
Long-term capital gains, meanwhile, are taxed at a lower rate than ordinary income. Here, too, the precise rate depends on the individual’s income and marital status:
| Taxable income (Single Filers) | Taxable income (Married Filing Jointly) | Tax Rate |
|---|---|---|
| $0 to $48,350 | $0 to $96,700 | 0% |
| $48,350 – $533,400 | $96,700 – $600,050 | 15% |
| $533,400 or more | $600,050 or more | 20% |
In addition, some categories of capital assets fall entirely outside of this rubric: gains on collectibles such as art, jewelry, antiques, and stamp collections are taxed up to a maximum 28% rate.
That’s not all: There’s an additional federal tax that was introduced in 2010, known as the Net Investment Income Tax (NIIT), that applies to most capital gains that exceed the exemption amount. The first $200,000 for a single filer, or $250,000 for married filers, are exempt from the NIIT. But everything in excess of those thresholds is taxed at 3.8%.
Unlike the federal government, New Jersey makes no distinction between short-term and long-term capital gains – or even between capital gains and ordinary income. Instead, it taxes all capital gains as ordinary income, using the same rates and brackets as the regular state income tax:
| Taxable Income (Single Filers) | Taxable Income (Married Filing Jointly) | Single Tax Rate | Married Filing Jointly Tax Rate |
|---|---|---|---|
| $0 to $20,000 | $0 to $20,000 | 1.4% | 1.4% |
| $20,000 to $35,000 | $20,000 to $50,000 | 1.75% | 1.75% |
| $35,000 to $40,000 | $50,000 to $70,000 | 3.50% | 2.45% |
| $40,000 to $75,000 | $70,000 to $80,000 | 5.53% | 3.50% |
| $75,000 to $500,000 | $80,000 to $150,000 | 6.37% | 5.53% |
| $500,000 to $1,000,000 | $150,000 to $500,000 | 8.97% | 6.37% |
| $1,000,000 or more | $500,000 to $1,000,000 | 10.75% | 8.97% |
| $1,000,000 or more | 10.75% |
So, what would these numbers look like in the real world?
Let’s consider Jenna, a New Jersey investor who purchased 7,000 shares of Apple stock in April 2019 at $50 per share. She decides to sell her shares in January 2025 at a price of $100 each. Jenna held the stock for more than one year, so her realized income is considered long-term capital gain.
Jenna realized a capital gain of $350,000. (She paid for 7,000 shares at $50 each, for a total of $350,000, and then sold them for $100 each, for a total of $700,000. That’s a net gain of $350,000).
Federal taxes
To simplify this example, let’s assume further that she doesn’t earn any other income. (If she did, it would be more complicated to figure out which bracket she falls into.) Given her $360,000 of gains, she would fall into the income bracket between $48,350 and $533,400, resulting in a long-term federal capital gains tax rate of 15%. As a result of the progressive tax system, however, not every dollar will be taxed at that rate. The amount below $48,350 won’t be taxed, so she would pay $46,748 in federal capital gains tax on this transaction (15% of every dollar over $48,350). In addition, Jenna would owe Net Investment Income Tax on the gains in excess of $200,000, resulting in another $6,080 of tax, bringing her total federal tax liability to $52,828.
State taxes
Jenna would also pay New Jersey taxes on her capital gains. Given her $350,000 capital gains, she falls into Jenna would also pay New Jersey taxes on her capital gains. Given her $350,000 capital gains, she falls into the 8.97% tax bracket. Like the federal government, New Jersey uses a progressive tax system, which means that different portions of the individual’s capital gains are taxed at the different rates corresponding to the brackets they fall into.
Here’s how it breaks down for Jenna:
Adding these amounts together, the individual would pay a total of $18,817.50 in New Jersey state capital gains taxes for 2025.
Short-term gains
A quick counterfactual: If Jenna had sold her stock after holding for less than a year, her earnings would have been considered short-term capital gains, and she would have been subject to ordinary income taxes at both the federal and New Jersey levels.
Capital gain taxes can significantly reduce your net earnings from the sale of an asset. Accordingly, it’s critical to identify strategies that can reduce these taxes.
Tax planning is a strategic approach to reducing a person’s tax liability by leveraging various tax benefits and allowances. It’s about understanding the tax implications of your financial decisions so you can minimize your taxes and, ultimately, keep more of your hard-earned money. This might involve making investments that offer tax benefits, choosing the right type of retirement account, taking advantage of generally available deductions and credits, or creating a tax-advantaged trust or other vehicle.
There are many tax planning strategies that can help you reduce your federal and New Jersey capital gains tax liability. Here are a few ideas:
You can also compare the quantitative returns and tax savings of these different strategies using our capital gains tax savings comparison calculator and customize it to your own situation.
Capital gain taxes can significantly reduce the wealth you keep. Fortunately, there are several strategies available to minimize these taxes. Read more here and check out our Guided Planner tool, where we’ll point you toward the strategies that might apply to you.
We’ve built a platform to give everyone access to the tax and wealth-building tools typically reserved for wealthy individuals with a team of accountants and lawyers. We make it simple and seamless for our customers to take advantage of these hard-to-access tax-advantaged structures. With Valur, you can build your wealth more efficiently at less than half the cost of competitors.
From picking the best strategy to taking care of all the setup and ongoing overhead, we make things simple. The results are real: We have helped create more than $3 billion in additional wealth for our customers. If you would like to learn more, please feel free to explore our Learning Center. You can also see your potential tax savings with our online calculators or schedule a time to chat with us!
