My situation is as follows — I am a 22 year old college senior graduating in May. January through May I lived in Indiana while at school. In June I will be living in IL at my parents’ apartment in Chicago for a month until finding my own place to move into July 1. I will be supporting myself & living alone July through December, and will therefore be filing as independent. My parents own a home in CA and are considered CA residents. Outside of a 4 day visit to CA in late June, I will not otherwise be stepping foot in the state this year. My bank accounts and car have been linked to IL since the start of the year, and in early May I received an IL ID and registered to vote in the state.
In January, I realized a capital gain on the sale of stocks. I plan on realizing another gain at some point later this year. My ultimate goal is to avoid paying tax on this gain outside the federal tax and IL state tax which I believe I will owe. My understanding is that once I am considered an IL resident, I would only owe IL (and not CA or IN) state tax on any capital gains. Is this true?
Moreover, when would I “officially” be considered an IL resident? At what point could I realize a gain and only owe IL state tax? Would I owe CA state tax at all on the gain I realized in January?
Any and all help is appreciated 🙂
You became an IL resident, in June, when you started living in your parent's apartment. Prior to that you were a CA resident, not an IN resident, because you were your parent's dependent prior to graduation and the move to IL.
Q. At what point could I realize a gain and only owe IL state tax?
A. The date in June when you started living in IL.
Q. Would I owe CA state tax at all on the gain I realized in January?
A. Yes.
Q. My understanding is that once I am considered an IL resident, I would only owe IL (and not CA or IN) state tax on any capital gains. Is this true?
A. Yes
Illinois taxes capital gains as ordinary income. California has a reduced rate.
"Unlike the federal government, Illinois makes no distinction between short-term and long-term capital gains – or even between capital gains and ordinary income. Instead, it taxes all capital gains as ordinary income, using the same rates and brackets as the regular state income tax.
Illinois is one of the states with a flat income tax rate. In the case of Illinois, no matter the amount of taxable ordinary income, the state tax rate will always be 4.95%." Reference: https://learn.valur.io/illinois-capital-gains-tax/#:~:text=Instead%2C%20it%20taxes%20all%20capital,rate%20will%20always%20be%204.95%25.
| Rate | Single | Married Filing Jointly |
|---|---|---|
| 1% | $0 – $8,932 | $0 – $17,864 |
| 2% | $8,933 – $21,175 | $17,865 – $42,350 |
| 4% | $21,176 – $33,421 | $42,351 – $66,842 |
| 6% | $33,422 – $46,394 | $66,843 – $92,788 |
Reference: https://www.roberthalltaxes.com/blog/news/guide-to-the-california-capital-gains-tax/
For tax year 2024 you'll be filing a part-year resident tax return for both CA and IL. As @Hal_Al stated, you'll become a resident of IL for tax purposes on the day you begin living there with the intent of making it your new domicile - your main, primary home.
Capital gain income is taxable by your State of Residence at the time you receive it.
If you earn any income by physically working in Indiana in 2024, then you'll also have to file a non-resident Indiana tax return at year's end.
So even though I have been living out of my parents IL home, it is not my main primary home, and therefore state of residence, because it is not their primary home?
Q. So even though I have been living out of my parents IL home, it is not my main primary home, and therefore state of residence, because it is not their primary home?
A. Simple answer: yes.
That said, why do you now say "have been living out of my parents IL home" when earlier you said "January through May I lived in Indiana while at school"? Why do you parents have an apt. in Chicago?
While you were "away at school", and a dependent of your parents, you are considered to be a resident of the same state as them.
The last few years my parents have held both properties. They live primarily out of their CA home but my belongings have been moved to their IL home. This is where I go the days/weeks I have off from school and consider it to be my “primary home.”
Both summers and almost all breaks (outside of 1 week in the summer and in December to see my grandparents) the last 2 years I have spent in IL while not at school.
The principle that a dependent child takes the domicile of their parent applies only to minor children. Since you are 22 years old, you would consider Illinois as your State of Residence for all of 2024 if you began living in Illinois prior to 01/01/2024 with the intent (as evidenced by your actions) of making Illinois your new domicile. See Section L, "Meaning of Domicile" on page 10 of this California tax publication:
"students who are residents of
California leaving this state to attend an out-of-state
school do not automatically become nonresidents, nor
do students who are nonresidents of California coming
to this state to attend a California school automatically
become residents. In these situations, individuals must
determine their residency status based on their facts and
circumstances, as described in Section G, Guidelines
for Determining Reside"
Page 5 https://www.ftb.ca.gov/forms/2023/2023-1031-publication.pdf
A dependent student who is a California resident does not automatically become a California non-resident by attending school in another state. However, there is nothing in tax law that precludes an adult student from changing his state of domicile by taking the steps outlined in Section L of CA Publication 1031, cited in my previous post.