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Level 2
posted Apr 7, 2022 11:36:08 PM

Home sale taxed in both states

I moved from CA to VA last year and didn't sell my CA house until a month later.  The profit exceeded the exclusion, so I owe long-term capital gains taxes both federally and at the state level.

 

California taxes 100% of the (non-excluded) proceeds since the property was in CA (TT explicitly itemizes the various combinations of CA/non-CA property and resident/non-resident).  But when I work out the Virginia taxes, it only asks how much of the capital gain occurred while I was a VA resident, which is also 100%.  So both states are fully taxing the same income.  IIUC, this is not supposed to be allowed: how do I fix this so that the proper reciprocity kicks in?

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1 Best answer
Expert Alumni
Apr 8, 2022 7:34:27 AM

You might be missing something but you're definitely on the right track. You do want to claim a credit on your California return for the tax paid to Virginia. To do this in TurboTax:

  1. On the California screen, Take a look at California credits and taxes, select Other State Tax Credit.
  2. Add Virginia and indicate you were living outside of California when you earned this income.
  3. Type in Capital gains from sale of main home and the amount of gain taxed by both states.
  4. Enter the total income tax paid to Virginia and the total adjusted gross income taxed by Virginia. Do not enter the change in taxes. You can get the total income tax paid by sneaking a peek at your Virginia return at this point:
    1. Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
    2. With the Tax Tools menu open, you can then view your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up
    3. Select VA Tax Summary in the left menu.
    4. Your Virginia income tax is about midway down. The Virginia AGI is the Federal adjusted gross income plus additions to income minus subtractions from income. Do not include your standard or itemized deductions.

 

3 Replies
Level 2
Apr 8, 2022 12:28:05 AM

CA and VA seem to have a weird reciprocity, where VA residents pay the full amount to VA and then get a credit back from CA.  I worked the VA taxes both with and without the house sale to find a delta of about $17000, so I entered that as the "tax paid to Virginia" in CA's section for other-state-tax credits.  This seems to have knocked the CA tax (on just the house) down from $25000 to $18000 - so the total tax on the house sale is now $35000 - substantially more than if I were paying it to either state alone.  This doesn't seem right - I feel like I'm still probably missing something?

Expert Alumni
Apr 8, 2022 7:34:27 AM

You might be missing something but you're definitely on the right track. You do want to claim a credit on your California return for the tax paid to Virginia. To do this in TurboTax:

  1. On the California screen, Take a look at California credits and taxes, select Other State Tax Credit.
  2. Add Virginia and indicate you were living outside of California when you earned this income.
  3. Type in Capital gains from sale of main home and the amount of gain taxed by both states.
  4. Enter the total income tax paid to Virginia and the total adjusted gross income taxed by Virginia. Do not enter the change in taxes. You can get the total income tax paid by sneaking a peek at your Virginia return at this point:
    1. Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
    2. With the Tax Tools menu open, you can then view your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up
    3. Select VA Tax Summary in the left menu.
    4. Your Virginia income tax is about midway down. The Virginia AGI is the Federal adjusted gross income plus additions to income minus subtractions from income. Do not include your standard or itemized deductions.

 

Level 2
Apr 8, 2022 10:16:58 AM

Thanks, that made a huge difference.  I'd been entering the tax only due to the double-taxed items (by refiguring it without them), so that number was much lower than the total Virginia tax and threw off the calculation.  Now it's still a little bit more than I'd be paying to either state alone, but the markup is much more reasonable.