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A 4455

Requires a stay of certain foreclosure proceedings

2025 Regular Session Introduced by Kwani O'Pharrow

New Jersey excludes from gross income the same QSBS gains that are federally excluded under IRC 1202, aligning NJ tax treatment with federal limits and rules.

REFERRED TO JUDICIARY
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Bill Summary · A 4455

Summary — A4455 (P.L.2025, c.67) — Exclusion for Qualified Small Business Stock Gains

Main purpose

This law provides New Jersey taxpayers an exclusion from State gross income for capital gains (or income) from the sale, exchange, or other disposition of qualified small business stock (QSBS) to the extent those gains are excluded from federal taxable income under Internal Revenue Code section 1202. In short: New Jersey will not tax QSBS gains that are federally excluded under IRC §1202.

Key provisions

  • Adds a New Jersey gross income exclusion (codified at N.J.S.54A:6‑34) for net gains/income from QSBS dispositions to the extent those gains are exempt under IRC §1202.
  • The State exclusion is explicitly tied to federal §1202: taxpayers may exclude from NJ gross income only the same amounts that the taxpayer can federally exclude under §1202 (including federal dollar/10x‑basis limits and prior‑year reductions).
  • All federal eligibility rules under §1202 (e.g., five‑year holding period, active business tests, $50 million aggregate gross asset limit, excluded business types such as specified service businesses, banks/insurance/finance, farming, hotels/restaurants) apply for New Jersey purposes because the exclusion is limited to amounts exempt federally.
  • The law applies to taxable years beginning on or after the January 1 next following enactment.

Eligibility / who is affected

  • Individual taxpayers (and individuals receiving pass‑through income from partnerships, S corporations, regulated investment companies, common trust funds, etc.) who realize QSBS gains that qualify for federal exclusion under IRC §1202.
  • Affected stock must meet federal QSBS requirements (original issue, C corporation, asset and active business tests, five‑year holding, etc.).
  • Taxpayers who exclude QSBS gains federally will be able to exclude the same amounts on New Jersey gross income tax returns (subject to the federal caps and reductions).

Fiscal impact

  • Office of Legislative Services (OLS) projects an annual State revenue loss of approximately $10 million to $12 million, beginning in FY2027 (assuming enactment in 2025 and the first returns claiming the exclusion filed in 2027).
  • The Executive had estimated a roughly $10.4 million annual revenue loss in earlier budget materials.

Effective date and application

  • The act took effect upon approval and applies to taxable years beginning on or after the January 1 following enactment (i.e., the first taxable year able to claim the exclusion is the new tax year that starts after the law’s enactment).

Legislative history / status

  • Introduced in the Assembly: June 3, 2024.
  • Passed both houses and approved as P.L.2025, c.67 (approved June 30, 2025).
  • Multiple committee amendments during 2025 clarified scope, timing, and alignment with federal §1202.

Notes / implications

  • Because the New Jersey exclusion is expressly tied to federal §1202, future federal changes to §1202 would affect New Jersey treatment unless the State statute is amended.
  • The law primarily benefits taxpayers with large capital gains from qualifying small C corporations and is expected to disproportionately benefit higher‑income taxpayers given federal usage patterns.

Compiled from official sources — confirm details with the bill’s official record.

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