Treasury's Response
Neither the capital gain from the sale of the rental, nor the passive loss from the rental activity should be included in MI. Thus, the capital gain would be reported as a subtraction, and the passive loss an addition on the MI return.
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Therefore, my original reporting was correct, and Turbotax is forcing errors on my return. Not only does it not remove the 100% when I answer it is not sourced to Michigan, it is now throwing red zeroes on line 23 of my MI-4797 after I started fresh and reinstalled MI after fully completing NY.
This is obviously a fault in Turbotax's handling of Michigan income tax law in its form calculations. Now that I have in writing a response from the tax authority I cannot chance it, I will need to do my first override, pay my fair share, and file by mail.
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For reference:
Inquiry Details
Rental property sold in NY by MI resident. Disposed w/ claimed passive loss larger than capital gain. Gain/loss reported on 4797 and NYS NR return. Fed AGI reduced by the difference. Should MI AGI be adjusted with an addition on Sch 1 Ln 4 of the realized passive loss and gain on Ln 12? Or just gain added and subtracted on Ln 3&12? Not a regular business, but Sch E filed. MI4797 Ln 19 be 100%?
@AmyC
