Skip to main content
Level 1
December 10, 2021
Solved

Sold a second home in PA resulting in a capital gain but I live in VA.

  • December 10, 2021
  • 1 reply
  • 3 views

Sold a second home in PA resulting in a capital gain. I live in VA. Is the gain taxable in both states? If so, are estimated tax payments required in both states?

Best answer by DanielV01

Is the gain taxable in both states?  Yes, with a qualifier.  Both states are allowed to tax this income, because while Virginia and Pennsylvania have a reciprocal agreement, this agreement applies only to wages (or compensation) that is reported on Form W-2.  Capital gains are not income that falls under the reciprocal agreement, so both states may tax this income.  (Virginia, your resident state, may tax all income regardless of where you earn it.  Pennsylvania may tax income that is "Pennsylvania-sourced" that is not covered by the reciprocal agreement).  However, when two states tax the same income, you can claim a credit on your Virginia return for the tax you are paying to Pennsylvania on this "double-taxed" income.  This will reduce the amount of Virginia tax by the lesser of what Virginia taxes that income or the amount of tax you pay to PA on that same income.

 

Are estimated tax payments required in both states?  It depends, but probably not.  In Pennsylvania, if you did not pay tax there in 2020 (assuming the capital gains are being reported for 2021), then you do not have to make any estimated tax payments and may resolve the tax bill at the time you file the Pennsylvania return.  For your Virginia return, since the credit for taxes paid to Pennsylvania will significantly reduce the amount of Virginia tax you must pay, then it is likely that your VA tax bill will not be significantly higher this year.  If for some reason it is, you still won't have to pay in estimated taxes if your normal job's tax withholdings are equal to or greater than your tax liability from last year.  If in doubt, and you want to be safe, you can make payments, but it is more likely than not that they won't be required.

1 reply

DanielV01
DanielV01Answer
Level 15
December 10, 2021

Is the gain taxable in both states?  Yes, with a qualifier.  Both states are allowed to tax this income, because while Virginia and Pennsylvania have a reciprocal agreement, this agreement applies only to wages (or compensation) that is reported on Form W-2.  Capital gains are not income that falls under the reciprocal agreement, so both states may tax this income.  (Virginia, your resident state, may tax all income regardless of where you earn it.  Pennsylvania may tax income that is "Pennsylvania-sourced" that is not covered by the reciprocal agreement).  However, when two states tax the same income, you can claim a credit on your Virginia return for the tax you are paying to Pennsylvania on this "double-taxed" income.  This will reduce the amount of Virginia tax by the lesser of what Virginia taxes that income or the amount of tax you pay to PA on that same income.

 

Are estimated tax payments required in both states?  It depends, but probably not.  In Pennsylvania, if you did not pay tax there in 2020 (assuming the capital gains are being reported for 2021), then you do not have to make any estimated tax payments and may resolve the tax bill at the time you file the Pennsylvania return.  For your Virginia return, since the credit for taxes paid to Pennsylvania will significantly reduce the amount of Virginia tax you must pay, then it is likely that your VA tax bill will not be significantly higher this year.  If for some reason it is, you still won't have to pay in estimated taxes if your normal job's tax withholdings are equal to or greater than your tax liability from last year.  If in doubt, and you want to be safe, you can make payments, but it is more likely than not that they won't be required.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"