You compute capital gains the same way for your HSA as for federal tax. There is no capital gain on the withdrawal of cash, but all interest earned on the cash (or dividends if you hold a non-Treasury money-market fund) are taxed when earned. If you hold a mutual fund, you pay tax on the dividends, and then your capital gain or loss is the difference between what you paid for the shares and what you received.
The simplest procedure would be to leave the money in cash in the HSA before transferring it, so that you pay NJ tax only on the interest. If you do invest, you could invest in a Treasury bond fund; NJ does not tax capital gains on Treasury bonds, nor on "qualified investment funds" which hold them.
And for similar reasons, you might want to hold Treasury bonds in your Fidelity HSA, to avoid the NJ tax; you would then hold less in bonds in your other accounts.
Sales and dividends in the HSA are not reported to NJ, only the balance in the Form 5498. Thus NJ does not know whether gains in the HSA were from non-taxable Treasury interest, non-taxable appreciation in stock values, taxable capital gains, or taxable stock dividends. But you are responsible for reporting all of your income correctly on your federal and state tax forms; this is what you certify when you sign the form.
If you keep good records, the reporting isn't that hard. I have had to deal with this for years, as I used to live in NJ, and even now, I sometimes earn money in CA or NJ and have to report my HSA on non-resident tax returns. The least convenient issue is keeping track of my CA capital loss carryover, since capital gains in the HSA affect that, and thus sales in the HSA in years in which I did not file a CA return may affect my future CA returns. NJ doesn't allow capital loss carryovers.
The simplest procedure would be to leave the money in cash in the HSA before transferring it, so that you pay NJ tax only on the interest. If you do invest, you could invest in a Treasury bond fund; NJ does not tax capital gains on Treasury bonds, nor on "qualified investment funds" which hold them.
And for similar reasons, you might want to hold Treasury bonds in your Fidelity HSA, to avoid the NJ tax; you would then hold less in bonds in your other accounts.
Sales and dividends in the HSA are not reported to NJ, only the balance in the Form 5498. Thus NJ does not know whether gains in the HSA were from non-taxable Treasury interest, non-taxable appreciation in stock values, taxable capital gains, or taxable stock dividends. But you are responsible for reporting all of your income correctly on your federal and state tax forms; this is what you certify when you sign the form.
If you keep good records, the reporting isn't that hard. I have had to deal with this for years, as I used to live in NJ, and even now, I sometimes earn money in CA or NJ and have to report my HSA on non-resident tax returns. The least convenient issue is keeping track of my CA capital loss carryover, since capital gains in the HSA affect that, and thus sales in the HSA in years in which I did not file a CA return may affect my future CA returns. NJ doesn't allow capital loss carryovers.
Statistics: Posted by grabiner — Tue Jul 02, 2024 7:53 am — Replies 1 — Views 147