Yes, the California (CA) return would be filed as a nonresident for both couples. It will include only the income from the gain from the sale of the investment property located there.
Washington (WA) does not have an income tax return (exception for the new Washington State "Working Families Tax Credit" (WFTC), which provides a tax refund of up to $1,290 to eligible individuals and families who meet certain requirements.
The Oregon (OR) couple will include the capital gain on their state return and the CA return. OR will provide a credit - see below.
State Returns - Your resident state requires you to include all worldwide income. Assume both states require income tax returns to be filed:
- Report the income on each state return that is from the nonresident state
- Report it on your resident state and receive credit for taxes paid to another state.
Credit for taxes paid to another state is allowed by a resident state when the same income is being taxed to another state. Your resident state does not want you to pay tax twice on the same income. The credit that is allowed will be the lesser of:
- the tax liability actually charged by the nonresident state, OR
- the tax liability that would have been charged by your resident state
In most cases complete your nonresident state first.
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