capital gains on sale of second home in a different state

[l_foust54]

I am a resident of Illinois. I had capital gains on the sale of a second home in Wisconsin. I'm running Turbo Tax Home & Business app on the PC...

- I reported the gains in Investment Income - Stocks, Mutual Funds, Bonds...

- I know I will pay on the federal return for the capital gains

- I know I need to file Wisconsin's 1NPR for non-resident sale to report the capital gains 

- It appears the Illinois return also reflects the gains from the home. That seems like double taxation...?

Question(s):

1. With the sale of the second home, Turbo Tax used a Standard Deduction. When I removed the sale of the second home, Turbo Tax switched to an Itemized Deduction. Why would that be?

2. If the sale of the home is reported on a Wisconsin form 1NPR, should it somehow be removed from the Illinois return. (Illinois is our state of residence.)  

[DianeW777]

It depends.  More detail would be needed to understand the switch from standard to itemized deductions and vice versa.  Review your tax return both ways to see what the differences are by using Preview My 1040 (click the link for instruction).

The state where the property is situated is going to tax the gain.  Likewise the state where you reside requires worldwide income.  The difference is that your resident state recognizes that and will provide a credit for taxes paid to another state on the same income.  The credit that is allowed will be the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by your resident state

If the nonresident state had been prepared first then TurboTax would know the numbers.  Make sure to write down the tax liability for the nonresident state return (WI), then when you go through you resident state return enter that in the credit section described above.  Have the gain available as well.

[l_foust54]

Thanks for this guidance! I agree - some deductions must have been applicable without the capital gains, and were not applicable with the gains. I have not had a chance to compare the returns in detail. 

Do you know specifically where I would enter the Wisconsin gains credit in the Illinois return?