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krsarr
New Member

I live in Arizona, but sold mineral rights located in Oklahoma. For which state do I report this as a capital gain?

 
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GeoffreyG
New Member

I live in Arizona, but sold mineral rights located in Oklahoma. For which state do I report this as a capital gain?

The short answer to your question is that you will pay taxes the capital gain from this mineral rights sale to both Arizona and Oklahoma.  The long answer to your question will take some time and space to explain; we will do so below.

To begin, it is a fact that as an Arizona resident you are taxed on all of your income, worldwide, no matter what the source, by the state of Arizona.  It is also a fact that the sale of property rights in Oklahoma is considered "Oklahoma-source" income; and so that requires paying taxes also to Oklahoma.  The reverse is also true, where the taxpayer is instead an Oklahoma resident and incurred a capital gain on Arizona property as a nonresident.

Normally, where a taxpayer has to pay taxes to two states on the same item of income (which often happens when a taxpayer lives in one state and has a wage-earning job in another state), they are then allowed to take a tax credit on their home state return for taxes paid to the other state.  Similarly, the same principles typically apply to non-wage taxation by more than one state -- which is also true as well for sales of land and mineral rights.

Of course, your capital gains income is still reportable (and taxable) by the federal IRS as well.

While the full details underlying the state tax credit claim for Arizona residents paying taxes to Oklahoma on the same item of income are not important at the moment, please know that the tax credit for any taxes paid to Oklahoma on the mineral rights sale will be claimed on your Arizona tax return.

While TurboTax can certainly compute this tax situation correctly, it can be tricky.  The "ordering" sequence of state tax preparation is crucial here.  In order to take the state tax credit correctly, for the double-taxed income, you would want to complete your federal return first, your Oklahoma nonresident return second, and then your Arizona resident return third.

The following webpage may also be useful to you, in understanding the general principles behind paying taxes to two different states, and then claiming a tax credit for that:

Finally, you may benefit by reading the following TurboTax webpage, which contains additional details on mutually-taxed income:

https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Multiple-States---Figurin...


Thank you for asking this important question.

View solution in original post

1 Reply
GeoffreyG
New Member

I live in Arizona, but sold mineral rights located in Oklahoma. For which state do I report this as a capital gain?

The short answer to your question is that you will pay taxes the capital gain from this mineral rights sale to both Arizona and Oklahoma.  The long answer to your question will take some time and space to explain; we will do so below.

To begin, it is a fact that as an Arizona resident you are taxed on all of your income, worldwide, no matter what the source, by the state of Arizona.  It is also a fact that the sale of property rights in Oklahoma is considered "Oklahoma-source" income; and so that requires paying taxes also to Oklahoma.  The reverse is also true, where the taxpayer is instead an Oklahoma resident and incurred a capital gain on Arizona property as a nonresident.

Normally, where a taxpayer has to pay taxes to two states on the same item of income (which often happens when a taxpayer lives in one state and has a wage-earning job in another state), they are then allowed to take a tax credit on their home state return for taxes paid to the other state.  Similarly, the same principles typically apply to non-wage taxation by more than one state -- which is also true as well for sales of land and mineral rights.

Of course, your capital gains income is still reportable (and taxable) by the federal IRS as well.

While the full details underlying the state tax credit claim for Arizona residents paying taxes to Oklahoma on the same item of income are not important at the moment, please know that the tax credit for any taxes paid to Oklahoma on the mineral rights sale will be claimed on your Arizona tax return.

While TurboTax can certainly compute this tax situation correctly, it can be tricky.  The "ordering" sequence of state tax preparation is crucial here.  In order to take the state tax credit correctly, for the double-taxed income, you would want to complete your federal return first, your Oklahoma nonresident return second, and then your Arizona resident return third.

The following webpage may also be useful to you, in understanding the general principles behind paying taxes to two different states, and then claiming a tax credit for that:

Finally, you may benefit by reading the following TurboTax webpage, which contains additional details on mutually-taxed income:

https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Multiple-States---Figurin...


Thank you for asking this important question.

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