Capital gains showing up in non-resident state

[Sirhatta]

I Live in Rhode Island (RI) and work in Massachusetts (MA).  I also own a rental property in RI and do my own stock trading from home (RI).  I started my MA Non-resident return first and my rental income & capital gains/losses from stock trading both show up in my non-resident form.  I went through the process of excluding them from MA income, but when I got to RI, they don't show up.  I would think that I have to pay resident state taxes on income from that state.

Am I doing something wrong?

[caldermd · Accepted solution]

Nope, you didn't do anything wrong.  I had the same worry as you.  Since I wasn't laboriously listing all my schedule D items for my home state, I was concerned that I was underpaying, it turns out it was just a little bit subtle.

I worked my taxes once with the stocks and bonds allocated to my non-resident state and once without.  Then I compared them discovering the mechanism....  My two states were CO (home) and WI (non-resident).

 - WI capturing my schedule D items:  CO: -$217, WI: -$298

 - WI excluding my schedule D items: CO: -$445, WI: -$47

You can see I didn't dodge any taxes by moving the items off of my NR state.This happens because the federal schedule D income is already included in your federal income line.  So your home state implicitly taxes your stocks and bonds.  When you let turbo tax allocate them to your NR state, that income ends up being excluded for your home state in the form of "tax paid to another state" which calculates a ratio of non-home income versus the federal number.  So when I did my taxes with WI capturing my stocks and bonds, then those were being taxed at WI income rates.  When I exclude them from WI, they get taxed at CO rates (which are lower).  And legally it belongs on your home state unless...

Looking at the instructions for Massachusetts form 830 CMR 62.5a.1 Non-Resident Income Tax...

"...  blah blah ...    All types of income, including investment income, derived from or effectively connected with the carrying on of a trade or business within Massachusetts are Massachusetts source income ..."

If you sell your shares of coca cola, that is not business within Massachusetts.  If still concerned look at the following Rhode Island instructions and example and see how your percent from State 'A' went down leaving a larger portion of your federal income to be taxed by Rhode Island.

http://www.tax.ri.gov/regulations/other/pit98-12.php

Also note that if you make changes to your non-resident state return, you need to revisit your resident return's calculation worksheet for out of state taxes...  I'm pretty sure TTax prompts you but it is good to be aware that these numbers travel to your other state return.

[Anonymous]

@fanfare @DianeW777  Hello, I am having a similar issue. Does anyone happen to know the answer to this please?  RI resident with MA w-2 and stock gains/losses going on the  non-resident MA return. (Overall loss for the year)  This was done automatically by TurboTax. Is this ok?   If not, how would I correct this?  Thank you very much for your help. 

[DianeW777]

No, the stock gains/losses should go only on your resident RI tax return. When you step through your nonresident MA return, you are able to make corrections to the income that was not earned in MA.  See the image below that will allow your adjustments.

Once you make the appropriate changes this income will be removed from your nonresident return.

@Anonymous

[Anonymous]

Thank you very much @DianeW777 
I greatly appreciate your help!!

[Anonymous]

Hi @DianeW777  I am sorry to trouble you but I have one more question. All my trades were uploaded from my broker to TurboTax. I am getting an error when I try to file that the 1099-b worksheet (cost or adjusted basis) is not between the prescribed upper limit. Is there some way around this so that I can e-file?  I’m assuming that all the numbers in the return are ok even though this number is too high.  Thank you again very much for your help.

[Anonymous]

Me again….Sorry for 2 questions in 1 day @DianeW777  but I went through all my capital gain/losses lines separately as you showed (and put not-MA for all) but they are still showing up on my MA nonresident return.  Any idea why this is happening?  Thank you again for your help.   🙂

[MarilynG1]

There are a couple things you can try to resolve your issue, since we can't see your return in this forum. 

If you're using TurboTax Online, close the program, clear your Cache and Cookies and go back to your Massachusetts return to see if it resolved.

If not, I would suggest deleting your imported broker info and entering your 1099-B info manually in your Federal return, then going into your MA return.

Click this link for steps on How to Enter 1099-B and How to Delete Imported Transactions.