Declaring Capital Gains when moving from one state to another state and selling property in the non-resident state.

[Cindy 2]

How do I avoid paying Capital Gains taxes in two different states?  Both States seem to want me to claim the full amount of Capital Gains for Real Estate I sold after moving from California to Oregon.  The Real Estate I sold was for my primary home and not an investment.  In TT CA State I didn't see where I could put a credit for being taxed $800 in the TT Oregon State.  For Oregon I think there's a place where I can put a a dollar amount for being taxed in another state but I don't know if I should put the entire amount of the Capital Gains or if I should leave this section blank and if TurboTax will figure this out for me using a ratio based on the days I lived in each state?  In addition, I believe that TurboTax and California have reciprocity so does TurboTax also take this into consideration?

In addition it is confusing why I need to list my Capital Gains separately for both States because that amount is already included in my total Federal income?  I have the opportunity to allocate a different amount of Capital Gains for each State but should I do this or will TurboTax figure this out for me?  Should I put the full amount of my Capital Gains in both States?  I was able to allocate a different amount of Interest and Dividends to each state but I wasn't sure if I was supposed to allocate a different amount of the Capital Gains to each state?  This is all very confusing.

Another question I have is on form CA (540NR); when I printed out the form that TurboTax generated column "B" was left blank which refers to "Subtractions" and says see instructions for differences between CA and federal law.  Where can I find these instructions and why didn't TurboTax give me an option of filling out column "B"?  It also left column "E" blank on the same form which I don't think is correct.  Whether column "E" is filled in with a dollar amount seems to be determined by whether I check the box "sale by sale" or "allocate if you know the amounts".  This page is very unclear and needs better explanation for the boxes that would be checked.  I have no idea what "sale by sale" means or if I know what the "allocation amounts" should be.  My taxes changed depending on which box I checked and it also determined if column "E" was filled in or not for California.  TurboTax needs to explain the laws for each state better and provide references.

I hope that someone can help me with my questions.  Thank you.

[DaveF1006]

According to the State of California, this document states If you are a nonresident and exchange real or tangible property located within California for real or tangible property located outside California, the realized gain or loss will be sourced to California. Taxation will not occur until the gain or loss is recognized.

According to this Turbo Tax article, you are taxed on all worldwide income so this sale is also taxable in oregon.  Now when you report your State returns, you will prepare your California non-resident return and then your Oregon resident return.  Since you are paying capital gains in both states, you are given credit for the capital gains tax in California reducing the taxable amount to zero, if you reported this correctly in both states. 

So in answer to the question about capital gains, the full capital gain amount is reported in both states but California will give you a credit. 

in reading the explanations given in the return, you would pick sale by sale if you didn't know the allocation amounts or you can choose allocation amounts. You can choose allocation amounts since the full capital gain is reported in both states. 

As far as the various columns in Schedule CA Schedule NR, Line E should have an amount in Line 7, which should reflect the amount of the capital gain. Then if you look on line 58 of the 540 NR, you are given credit for the other state with a code 187. This is all contingent on the fact you reported everything correctly in the state interview portions of the program.

In the Schedule CA Schedule CR, you won't enter anything in Column B. I hope this helps.

[Cindy 2]

Hello Dave F1006,

Thank you for your thoughtful response to my question.   I think what you are saying is that there is reciprocity between California and Oregon and that I do not need to figure out the amount of credit I would put into my California return because TT will figure that out as long as I file the tax returns in the right order?  But there is still some confusion based on a quote from the link you provided and what you stated in your response regarding the order in which to file your state taxes.  Here is what your link stated:

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

This is what you stated in your response:

"According to this Turbo Tax article, you are taxed on all worldwide income so this sale is also taxable in Oregon.  Now when you report your State returns, you will prepare your California non-resident return and then your Oregon resident return.  Since you are paying capital gains in both states, you are given credit for the capital gains tax in California reducing the taxable amount to zero, if you reported this correctly in both states."

Do you see how each statement is different regarding the particular order in which to file the state taxes?  Also I do not understand why TurboTax would not explain this to users who are filing two separate state tax returns especially if it would effect the amount of credit they would get in one state for capital gains filed in both states.

Also I believe that in your first paragraph shown below, the link that you referenced is talking about the exchange of "Like Property" and not the sale of a primary home in your non-resident state.   Here is your reference:

"According to the State of California, this document states If you are a nonresident and exchange real or tangible property located within California for real or tangible property located outside California, the realized gain or loss will be sourced to California.  Taxation will not occur until the gain or loss is recognized."

I believe that you can only exchange "like property" when they are rentals or homes used as investments and not the sale of your primary home.  I could be wrong on this but I thought I read this somewhere.

Anyway, I appreciate you taking the time to answer my questions.  

Cindy2

[Cindy 2]

Sorry but in my last message when I was referring to "Like Property", I really meant "Like-Kind" property as stated in the referenced article.

Thanks,

Cindy2

[Cindy 2]

To add to my last message, the most important information really is that you need to file the total amount of Capital Gains for each state and make sure to allocate the full amount to both states either under "Sale by Sale" or under "Total Amount".  Also, I guess it is important as to which order you file your state taxes.  I have already filed and I did not know ahead of time which order was correct so I filed my non-resident state first.  I wish TT had explained this upfront before I had started filing my state tax returns.  Also, TT should have explained the actual tax laws for each state regarding if the Capital Gains can be allocated or if you have to file the full amount for both states.  This was very confusing.  TT also should have included information about states that have reciprocity and how the tax credits are handled.  Thank you for listening to my feedback.

Cindy2