Inherited Out of State IRA Schedule K-1

[TC07]

I am an Indiana resident with an inherited IRA distribution detailed on a Schedule K-1 (Form 1041) for Ohio, also have an Ohio IT K-1 schedule.  How do I enter this into Turbo Tax (Home & Business)?  I need to somehow distinguish this from Indiana taxable income and post as Ohio taxable income.  Any help is appreciated!  

[Hal_Al]

Ohio does a convoluted tax calculation for non-residents/part year residents. It calculates tax on total income, then it calculates a non resident/part year resident credit, which it subtracts from the tax it calculated on the total income. The credit is calculated as your non-Ohio income divided by Total adjusted Income multiplied by the total tax. TurboTax (TT)   does this by allocating your income as either Ohio or non-Ohio. W-2 income will be allocated by the state name abbreviation shown in box 15 of your W-2. TT will ask you, by income type,  in the state section, how much of your other income is Ohio or non-Ohio income. Make sure that your non-Ohio wages show IN  in box 15 of your W-2 screen, with the IN amount in box 16.

This system allows Ohio to apply their highest tax rate, based on your total income, while only taxing your Ohio income.

Ohio has a nonresident credit allocation form, IT NRC

https://tax.ohio.gov/static/forms/ohio_individual/generic/PIT_ITNRC.pdf

[TC07]

Thank you for your assistance...it is greatly appreciated.  I am still struggling to properly process the K-1 within TurboTax to effectively allocate the income from the inherited IRA from Indiana to Ohio.  This is most likely due to my inexperience with the product.

[Hal_Al]

Sorry, I missed the fact that the income is from an inherited  IRA. That is not Ohio source income. You should not need to file an OH non resident return. 

 It was a mistake for the executor to issue you an OH K-1.  It was an even bigger mistake if they withheld OH state tax. You'll have to file for a refund.

I further assume you were working on the OH return. Are you working on the IN return, When you say "I am still struggling to properly process the K-1 within TurboTax to effectively allocate the income from the inherited IRA from Indiana to Ohio"?  I'm not specifically familiar with IN forms/TT software, but hat's not how it usually works.  You don't allocate income on your resident state (IN) return.  You pay IN tax on all your income, regardless of the source.  Then, your home state gives you a credit for any tax paid to another state. 

[TC07]

Again, thank you for your response.  I'm assuming that since the proceeds were paid directly from a Traditional IRA established in Ohio that there would be state income tax due.  If you are saying that is not the case...that certainly simplifies the matter...and eliminates my need for TurboTax processing guidance.  I did speak to the CPA that settled the estate and issued the K-1 and was told that I did indeed need to file the Ohio return.  No taxes were withheld from the distribution.  You've been kind to respond...I certainly do appreciate the counsel!

[Hal_Al]

I disagree with your CPA (I'm not a CPA).  That's like saying an IRA with a bank in NY requires you to file a NY return when take a distribution.  But, it may be because the estate  (not the IRA itself) is an OH entity.  That's beyond my pay grade, but I wouldn't file an OH return in that situation.

From the Ohio insturctions:

Examples of Ohio sourced income include the following:
● Wages or other compensation earned in
Ohio (see "Exception" below);
● Ohio lottery winnings;
● Ohio casino gaming winnings;
● Income or gain from Ohio property;
● Income or gain from a sole proprietorship
doing business in Ohio;
● Income or gain from a pass-through entity
doing business in Ohio.