I am a CA Resident and received an AZ Form 165 Schedule K-1; How do I tell turbo tax that this is not CA income?

[DanielV01]

It depends.  Since you are a California Resident, you do pay taxes on all of your income regardless of where you earned it.  However, California will give you a credit for the taxes you pay to another state (in this case, Arizona) on that same income so that you are not over-taxed.

To reflect this in TurboTax, you will prepare the Arizona nonresident return first in TurboTax.  This will allow the program to calculate the credit.  You will verify that the credit has been calculated and applied to your California resident return in the Credit for Taxes Paid to Another State screen.

[garys_lucyl]

Did the credit rules change?  I am in my  CA return for 2021 and there is a Note that says "California residents cannot claim this credit if it's for tax you paid to: Arizona, District of Columbia (unless you are a dual resident), Guam, Oregon, or Virginia (unless you are a dual resident).

[DaveF1006]

According to this Ca 540 Schedule S instruction; "California residents who are included in a group nonresident tax return similar to the tax return described in California Revenue & Taxation Code (R&TC) Section 18535, filed with the states listed in this section, as well as Arizona (AZ), Oregon (OR), or Virginia (VA) may also claim a credit for their share of income taxes paid to these states, unless any of these states allow a credit for taxes paid to California on the group nonresident tax return".

The key caveat to this is if Arizona has allowed a credit for taxes paid to California on a AZ non-resident tax return.

@garys_lucyl

[garys_lucyl]

Thank you, I went back in and redid the AZ non resident return and see that the credit works the other way for my return.