Capital Loss and Dividend allocation as a NY nonresident

[vg222]

Hi, I am a IL full-time resident telecommuting to New York (due to the Convenience of Employer rule). Hence, I am paying full NY taxes and claiming a credit on my IL return (I am making 0 income in IL).

I do have a -3k capital loss carryover and about 1k in qualified dividend income, for a total net of -2k that I was hoping to apply against my NY income. However, I am now under the impression that because I am a full-time IL resident, I can only apply this -2k of income against my IL returns (where I have 0 income anyway). So while I still pay NY taxes for the wages earned while telecommuting, I cannot subtract the 2k from that income earned because that would be allocated to my state of residency. And I guess this would go to waste as there is no income to net against in my IL return.

Is my understanding correct? Thanks for the help!

[RaifH · Accepted solution]

Yes, your understanding is correct. You cannot use your capital loss carryover to offset your nonresident wages. 

Your wages are considered IL income, but since it is also taxed by NY you receive a credit for the tax paid to NY which probably results in no liability to IL. If there are no other forms of IL-sourced income, then your carryover credit for the state would be wasted.