Living in Iowa and Selling California House

[iowadavid]

I live in Iowa and I sold a rental house in California.  For the state taxes I did the California first and TurboTax continues to show the capital gains in Iowa, NOT California.  I am at a loss as to how to show the gains in California.

[Mike9241 · Accepted solution]

sorry. but since the property is in Ca and you live in IA, the gain is taxable in both states. however, IA will give you a credit for some or all of the taxes you paid to CA

IA form 41-130

https://tax.iowa.gov/sites/default/files/2021-12/IA130%2841130%29.pdf 

to get California you must answer yes that you had income in another state and file a non-resident return for that state.

if you're past that go back to the personal info tab and go down to the line that asks about other state income

on the next screen answer yes to the question about income from other states and select california. there will be a fee for adding another state and if you e-file there will be another fee.

hopefully, you've been filing a Ca return for each year of the rental. 

[iowadavid]

I did that and all the capital gains show up in Iowa and not in California. And yes I have been filing taxes every year in California.

[MayaD · Accepted solution]

Did you enter the amount of capital gain as CA source income on your CA non-resident return?

1. Open CA return.
2. Continue until you get to Nonresident Adjustments
3. Continue and enter the full amount of Capital Gain as Earned/Received from CA source as if nonresident for full year.

[Seadog317]

On May 18, 2015, the U.S. Supreme Court answered this question in Comptroller of the Treasury of Maryland v. Wynne et [575 U. S. __ (2015)], ruling in a 5-to-4 decision that two states cannot tax the same income. 

I do believe that if one states tax is higher than the other state they can charge for the remainder of the higher tax.  Since California is a higher tax state there would be no remainder for Iowa to tax capital gains.

[RobertB4444]

Yes and no.  In this case, as an Iowa resident, the taxpayer would first complete a California Non-resident return.  California taxes your income as if you were a resident and then takes a percentage based on the percentage of your income earned from California sources.  Which is a long way around to saying California taxes are high, which you knew.  Then all of the income is also claimed on this taxpayer's Iowa resident return.  However, Iowa provides for a deduction for any taxes paid to other states for income earned while an Iowa resident.  So you wouldn't deduct the income from your Iowa return.  You would deduct the taxes actually paid.  Which in this case works out better.

@Seadog317