NJ Resident - Question on VNJUX in taxable

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
PlayingLife
Posts: 418
Joined: Sun Dec 29, 2013 2:10 pm

NJ Resident - Question on VNJUX in taxable

Post by PlayingLife »

As a NJ resident, what capital gains taxes would I owe if realizing gains on VNJUX (Fed and state)?

What about on interest payments?

I need somewhere to park $100K that we may use for home remodeling in 1-3 years. If the value dips I have no problem keeping the fund longer. I had another $100K and I put that into one-year treasuries as I wanted mostly a guarantee at least half of my overall investment would be safe a year out from now.
User avatar
retired@50
Posts: 15954
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: NJ Resident - Question on VNJUX in taxable

Post by retired@50 »

PlayingLife wrote: Fri Jan 31, 2025 11:49 am As a NJ resident, what capital gains taxes would I owe if realizing gains on VNJUX (Fed and state)?

What about on interest payments?
The interest payments would be tax free at both the Federal and State level for NJ residents. Reported as exempt interest dividends in box 12 on your 1099-DIV.

As for capital gains, if you buy a share for $11.36 (the current price) and sell it for more than that, you'd have a regular capital gain (either short or long term depending on your holding period). The tax rate on that capital gain would depend on your overall level of income.*

*ETA: See exception below mentioned by grabiner about NJ state income taxes on capital gains.

For more on how capital gains are taxed, see the IRS link below.
https://www.irs.gov/taxtopics/tc409

Regards,
Last edited by retired@50 on Tue Feb 04, 2025 1:43 pm, edited 1 time in total.
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
User avatar
grabiner
Advisory Board
Posts: 36685
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: NJ Resident - Question on VNJUX in taxable

Post by grabiner »

Capital gains on this fund are exempt from NJ state tax. NJ, unlike most states, does not tax capital gains on securities which are exempt from NJ tax, nor on "qualified investment funds" which hold them. (Some other states exempt capital gains on individual state tax-exempt bonds but do tax capital gains on funds.)

Whether the NJ tax-exempt fund or a Treasury fund is better depends on your tax rates. Treasuries are subject to federal but not NJ tax, and they are also less risky, so you should probably prefer a Treasury fund in a 24% or lower tax bracket even if its after-tax yield is slightly less than a NJ fund of the same duration.
Wiki David Grabiner
Topic Author
PlayingLife
Posts: 418
Joined: Sun Dec 29, 2013 2:10 pm

Re: NJ Resident - Question on VNJUX in taxable

Post by PlayingLife »

grabiner wrote: Sat Feb 01, 2025 10:38 pm Capital gains on this fund are exempt from NJ state tax. NJ, unlike most states, does not tax capital gains on securities which are exempt from NJ tax, nor on "qualified investment funds" which hold them. (Some other states exempt capital gains on individual state tax-exempt bonds but do tax capital gains on funds.)

Whether the NJ tax-exempt fund or a Treasury fund is better depends on your tax rates. Treasuries are subject to federal but not NJ tax, and they are also less risky, so you should probably prefer a Treasury fund in a 24% or lower tax bracket even if its after-tax yield is slightly less than a NJ fund of the same duration.
I think I have this clear now. I'm in the 35% bracket and I read elsewhere that VNJUX may make more sense for higher tax brackets. Basically, I would get to pocket all gains with this fund versus paying 35% federal taxes on treasury returns. Thank you.
User avatar
A440
Posts: 1423
Joined: Mon Sep 02, 2013 7:46 am
Location: NJ

Re: NJ Resident - Question on VNJUX in taxable

Post by A440 »

I didn't know about the capital gains being tax-free.
Cheers for at least one good thing about NJ and taxes. :beer
I'm going to consider this fund in the near future.
I don't know what the future holds, but I know who holds my future.
User avatar
retired@50
Posts: 15954
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: NJ Resident - Question on VNJUX in taxable

Post by retired@50 »

grabiner wrote: Sat Feb 01, 2025 10:38 pm Capital gains on this fund are exempt from NJ state tax. NJ, unlike most states, does not tax capital gains on securities which are exempt from NJ tax, nor on "qualified investment funds" which hold them. (Some other states exempt capital gains on individual state tax-exempt bonds but do tax capital gains on funds.)
This ^ is an interesting quirk I'll try to remember when I'm offering my opinion to NJ investors. Thanks for posting.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
tfalk
Posts: 110
Joined: Mon May 11, 2020 1:36 pm

Re: NJ Resident - Question on VNJUX in taxable

Post by tfalk »

Not sure we want this NJ "quirk" to beome widely known otherwise our governor and tax officials will close that loophole faster than a traffic cone can appear on our highways..... "wait, we missed an opportunity to tax something???"
Saleen - Power in the hands of a fool
User avatar
grabiner
Advisory Board
Posts: 36685
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: NJ Resident - Question on VNJUX in taxable

Post by grabiner »

tfalk wrote: Wed Feb 05, 2025 9:31 am Not sure we want this NJ "quirk" to beome widely known otherwise our governor and tax officials will close that loophole faster than a traffic cone can appear on our highways..... "wait, we missed an opportunity to tax something???"
It's a deliberate decision made by the NJ state legislature when they wrote the tax law.

And it doesn't actually change taxes that much, because bonds are just as likely to have capital losses as gains. If you hold a NJ municipal-bond fund or Treasury bond fund and rates rise, you can sell it for a loss and deduct the loss on your federal taxes, but not on your NJ taxes. If rates fall, you can sell it for a gain and pay capital-gains tax on your federal taxes, but not on your NJ taxes.
Wiki David Grabiner
Post Reply