Both. Gain on the sale of real property is generally taxed in the state the property is located. Further, your resident state will generally tax all of your income, but will allow a credit for the tax paid to the other state. The credit is generally limited to your resident state tax rate. Say, for example, your resident state tax rate is 5 percent, but you paid 6 percent in the state where the property was located. Your resident state would allow a credit at the 5 percent rate, not 6.
