The installment sale income from a California property is taxable to a nonresident but the interest income is not.
According to the California Franchise Tax Board:
As a nonresident, you pay tax on your taxable income from California sources.
Sourced income includes, but is not limited to:
- Services performed in California
- Rent from real property located in California
- The sale or transfer of real California property
- Income from a California business, trade or profession
FTB Publication 1100, Taxation of Nonresidents and Individuals Who Change Residency, further clarifies:
California taxes installment gains received by a nonresident from the sale of tangible property and intangible property that is sourced to California. California taxes real property based upon where the property is located.
California taxes the installment proceeds received by a nonresident to the extent the income from the sale was from a California source.
Example 2
You have always been a nonresident of California. On March 1, 2022, you sold a California rental property in an installment sale. During 2022 and 2023, you received installment proceeds comprised of capital gain income and interest income.
Determination
The capital gain income is taxable by California in both 2022 and 2023, because the property was located in California. The interest income is not taxable by California and has a source in your state of residence.
Your California Form 540NR starts with the Federal Adjusted Gross Income and then any additions or subtractions are shown on California Form Schedule CA (540NR). Review that form and if you need to make any adjustments, go back to the California interview and review your answers to the questions.
@aglambert
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
