Short-Term Rental Taxes in New Jersey: What Investors Need to Know in 2025

New Jersey's STR market is dominated by the Jersey Shore — a 127-mile coastline that draws tens of millions of visitors annually to beach towns from Sandy Hook to Cape May. The state's STR tax environment is challenging: one of the country's highest income tax rates, non-conformity to federal bonus depreciation, and a 6.625% sales tax on short-term rentals. Despite these hurdles, the Shore's strong revenue potential makes STR investing viable — especially with strategic tax planning.

New Jersey State Income Tax on Rental Income

New Jersey has one of the most progressive income tax structures in the country. Rates range from 1.4% at the lowest income levels to 10.75% on income over $1 million. Most STR investors with meaningful rental income will face NJ rates in the 5.525%–6.37% range (applicable to income over $75,000 and $500,000, respectively). At these rates, the non-conformity to bonus depreciation is particularly costly.

New Jersey Bonus Depreciation Non-Conformity

New Jersey does not allow federal bonus depreciation. On your NJ state return, you must add back any federal bonus depreciation deduction and compute depreciation using standard MACRS methods. This means a $200,000 federal bonus dep deduction generates approximately $0 in year-one NJ deductions (instead, NJ deductions are spread over the asset's MACRS life — 5 years for personal property, 39 years for building).

At a 6% NJ effective rate, $200,000 of disallowed first-year deductions means an extra $12,000 in NJ state taxes in year one. Those deductions are recovered over subsequent years, but the time value cost is real and significant — especially for high-income investors in the 10.75% bracket.

New Jersey Sales Tax on STR Rentals

Jersey Shore: New Jersey's Premier STR Market

The Jersey Shore is one of the most heavily visited coastal destinations on the East Coast, drawing primarily from the New York City and Philadelphia metro areas. The 127-mile coastline is dotted with distinct communities: Cape May (Victorian architecture, upscale tourism), Cape May Court House, Wildwood (family amusement parks), Ocean City (family-friendly, alcohol-free), Long Beach Island (LBI), Spring Lake, Asbury Park (arts and music scene), and Point Pleasant Beach, among many others.

Jersey Shore STR properties range from small beach cottages to large multi-family homes that accommodate extended families and groups. The market is intensely seasonal — peak season runs mid-June through Labor Day, with strong Memorial Day and Fourth of July weeks. Weekly rentals are the dominant booking pattern in many shore towns, which can interact with the 7-day average stay STR loophole requirement in interesting ways.

Delaware Water Gap: NJ's Mountain STR Market

The Delaware Water Gap National Recreation Area in Warren and Sussex counties draws hikers, kayakers, and outdoor recreationists from the New York and Philadelphia metros. This is a smaller, less developed STR market than the Shore but offers more accessible entry prices and year-round potential for outdoor recreation tourism.

Cost Segregation in New Jersey: Federal Benefits Still Significant

Despite New Jersey's unfavorable bonus dep treatment, cost segregation remains one of the most powerful tools available to NJ STR investors because the full federal deduction is intact. A $600,000 Jersey Shore property with $150,000 in cost seg deductions at 37% federal generates $55,500 in year-one federal savings. The NJ timing penalty at a 6% effective rate is approximately $9,000 — recovered over the following 4–5 years. Net first-year benefit: still $46,500+.