Part-year allocation for Virgina tax filing - Capital gains and rent income was earned as a non-resident. Will turbotax generate form 760PY and form 763?

[dpa500]

I am on the Part-Year Allocation for Virginia tax filing section in Turbotax. Turbotax is asking to enter the portion of the federal total that is applicable as a Virginia resident. I have entered in the wage income earned while a VA resident, however capital gains and rent income was earned after I moved out the state and not while in VA. There is no other section to enter those values earned as a non resident but I need to account for that income. I am wondering if turbotax will differentiate the values if all entered in this section and auto generate a form 763 and a 760PY.

[NCperson]

@dpa500 if the capital gains and rent were earned after you left VA, they do NOT go on the VA return - that is why you are not asked about it.  But there may be a twist here. 

The capital gains is cut and dried - you state it was earned after you left VA.  It goes on the other state's tax return.  What state? 

THe rent can be a challenge.  to be clear, where is the property that you are earning the rent from?  Are you saying the residence you were living in was turned into a rental? Where is this property? it is not clear and makes a difference. 

why do you think "you need to account for that income" on the VA return? What is the other state? 

[dpa500]

Thank you @NCperson . The other state is Florida which I do not file state taxes for. The property is located in VA which I earned rental income on. Turbo tax walked me through calculating capital gains/depreciation for that property in the intial steps as part of my federal return. When I got to the State income, I got to a page titled part-year allocation for Virginia tax filing which had 2 columns. A column listing values taken from my federal return and a second column in which I had to fill out and allocate how much of those values were earned while in VA. It is confusing, because I need to allocate that rental income but I believe as a non resident and not as a part year resident. The VA tax filing instructions (per their website) indicate that both forms need to be completed but I'm not sure if turbotax auto does this.

[NCperson]

@dpa500 so here is the issue.  

You are required to pay tax on income EARNED in VA or SOURCED in VA.   Even though you now live in FL, you are still required to pay tax on the rental income in VA because it was SOURCED in VA. 

1) complete the PART YEAR VA tax return.  (form 760PY) You want to report all the income you earned in VA during the time you lived there.  Sounds like what you do NOT report is the capital gains (because you sold the assets while a resident of FL) and the rental income and related expenses that occured after you moved from VA. 

2) then complete the NON-resident VA tax return.  (form 763) You must report the rental income (and related expenses) that occured AFTER leaving VA.  This is the ONLY income that should be reported on this form.  This is VA sourced income and you would need to report this to VA not only this year but for as long as you own this VA property.   

3) the rental income on the Part Year return plus rental income the non-resident return should equal what you reported on the federal tax return. 

<<It is confusing, because I need to allocate that rental income but I believe as a non resident and not as a part year resident.>>

you are correct.  and it's confusing because you moved from VA, but still have VA sourced income. 

4) if TT doesn't let you do both the form 760PY and 763, then I would let TT file form 760PY.  Then get a copy of form 763 from the VA revenue website and do it by hand - it is not that hard. just go slow. 

does that help? 

[dpa500]

@NCperson Yep, correct and you helped, thank you. I guess my issue is that TT doesn't do a good job of explaining as well as letting you know what forms will be populated with the information you are entering. I figured out how to attach the below snipping which is creating all the confusion. TT is asking to enter in capital gains and rental income earned while a VA resident. As a resident, I would enter 0. But then, I am not accounting for those amounts as a non-resident because TT doesn't ask to enter those further on. 

[NCperson]

@dpa500 TT wouldn't ask for the non-resident amounts because it is not necessary.   the Non-resident amounts have no impact on a part-year tax return.   the part year return only cares about the income earned while a resident of VA.  

I would submit you are overthinking it 😌

[dpa500]

@NCperson Haha, thanks. Yes, part year only cares about what I earned while a resident so I would be correct in entering 0 for capital gains and rental income right? And as you mentioned earlier, I would have to complete a 763 separataly outside of TT to account for the capital gains and rental income? If so, that's definitely a flaw in TT. 

[NCperson]

@dpa500 before I respond in detail, please confirm

1) the real estate you are now renting is the home you were living in prior to moving to FL.  Is that why there is no rental income for the part-year prior to moving?

2) on the capital gains.....is that stocks and bonds sales?  or real estate sales? and if real-estate, in what state is the real estate located? 

[dpa500]

@NCperson thank you again!

1) the real estate you are now renting is the home you were living in prior to moving to FL.  Is that why there is no rental income for the part-year prior to moving?

Yes corrrect. I was living in that home prior to moving and rented it out once I moved. As a matter of fact, the rental income is actually a negative amount because TT calculated depreciation on that property. 

2) on the capital gains.....is that stocks and bonds sales?  or real estate sales? and if real-estate, in what state is the real estate located? 

According to TT, the capital gains was calculated from my net long-term capital gain. It's from investments (dividends) and savings. I think I am going to have to include a portion of this as a VA resident in actuality. For 2024 only, the amount is considerably less.

[NCperson]

@dpa500 

1) on the capital gains / dividends.  Whatever you sold / dividends received prior to moving from VA is Part Year VA income.   The rest was earned in FL so there is no state income tax from either state.  

2) on the rents..... there is nothing to show on the Part Year since the property wasn't rented while a VA resident.   When you do the Form 763 (non-resident), you will owe no tax, since this reported loss is the only VA income to be reported in the right most column of the grid on the 2nd page.  You are still required to file the tax return because your AGI is presumably greater than $11,950 (filing Single).  If you do form 763 by hand and shows you owe tax, you've done something incorrect. 

<<I think I am going to have to include a portion of this as a VA resident in actuality. For 2024 only, the amount is considerably less.>>

you lost me on this.  Whatever capital gains you had  on assets sold or whatever dividends you received in 2024 while a VA resident must be reported in the VA column of the Part Year return.  Whatever capital gains you had  on assets sold or whatever dividends you received in 2024 while a FL resident DOES NOT get reported in the VA column of the Non-Resident return.

does that help?

[dpa500]

you lost me on this.  Whatever capital gains you had  on assets sold or whatever dividends you received in 2024 while a VA resident must be reported in the VA column of the Part Year return.  Whatever capital gains you had  on assets sold or whatever dividends you received in 2024 while a FL resident DOES NOT get reported in the VA column of the Non-Resident return.

@NCperson sorry for the confusion. I confused myself as well. Per TT learn more - "Since it may be hard to tell how much of this interest income was earned while you lived in each state, it's OK to allocate according to the time you spent in each state." 

I will do this for both the dividend income and capital gains as well.  

2) on the rents..... there is nothing to show on the Part Year since the property wasn't rented while a VA resident.   When you do the Form 763 (non-resident), you will owe no tax, since this reported loss is the only VA income to be reported in the right most column of the grid on the 2nd page.  You are still required to file the tax return because your AGI is presumably greater than $11,950 (filing Single).  If you do form 763 by hand and shows you owe tax, you've done something incorrect. 

Copy that, thank you again! Hopefully no more questions for you.

[NCperson]

@dpa500 it shouldn't really be necessary to allocate the dividends and capital gains based on time....it should be documents on your brokerage statement.... if you have dividends that you receive directly from the firm, yeah, allocating is easy as they are only paid 4 times per year.  a quick good search will display the specific date the dividends were paid.