We sold a summer home in Michigan in 2017. Our primary residence is in Tennessee. Do we file income or capital gains taxes in Michigan?

[jwholt]

The Michigan summer residence, that was sold in 2017, was put into a trust in 1970.  The trust was closed when the property was sold.  There are 4 beneficiaries.

Do each of these beneficiaries pay income or capital gains to the stat of Michigan?

[hcryan-clark]

no they pay capital gains in their state

[SweetieJean]

was the home ever rented out?

[jwholt]

We don't have a capital gains tax in Tennessee.   The home was not rented.

[Hal_Al]

Maybe.

The trust must file a federal tax return. The trust has the option of paying the tax or issuing each of the beneficiaries a form K-1 and letting them report the income. If the trust pays the tax, you do not file a MI return or report the income on your federal return. The trust must also file a MI return

If you get a K-1; you (and the other beneficiaries) will have to file a MI return and pay MI income tax on the gain. You will also report the gain on your fedearl return. 

Normally, you would also report the income on your home state return and get a credit for what you paid MI, so that you are not double taxed. But since TN does not have an income tax, you will  pay MI only.

[jwholt]

For the Federal return, we planned to issue K-1s to each of the beneficiaries.  If I'm understanding correctly, each beneficiary will file a Federal 1041 (Income Tax Return for Estates and Trusts) with their K-1, and each will file a MI-1041 to the Michigan Department of Treasury?

[jwholt]

Thank!!! Very Helpful!

[Hal_Al]

No. Only the trust will file a federal 1041. The beneficiaries do not. They just include the K-1 income on their personal tax return (1040).  The trust does not need to file a MI-1041, because each beneficiary will be filing a MI-1040 to report their share of the income

[SweetieJean]

The Trust must file a Michigan trust return.

 http://www.michigan.gov/documents/treasury/RAB_2015-15_498014_7.pdf