I am currently living in Texas and my work is in Michigan. I will be filing non-resident tax return for michigan state. but how will my capital gains taxed (texas=no tax)

[nishantgupta01]

i am currently living in Texas and my work is in Michigan. I will be filing non-resident tax return for michigan state. but how will my capital gains be taxed since texas has no state tax. i have a signiificant amount of earnings from stock sales and i would like to avoid paying Michigan state income tax.

[LenaH]

You do not have to pay Michigan state income tax on stock sales since it is not considered sourced from your nonresident state. It is income sourced in your resident state (where you reside, which is Texas). Texas has no capital gains tax and therefore you will not be liable to pay state tax. This is, however, taxed at the federal level. 

[nishantgupta01]

Thanks for the reply. my issue is not for tax filing for 2020 but for 2021 (next year). actually let me clarify more on my issue.

In 2020, i was living in michigan and I was living in michigan in january and i just moved to texas in February, but my work is still in michigan.

how will this impact my stock sales capital gains tax? I have significant capital gains in january and most likely i will have a lot more rest of the year. My brokerage firm still has my michigan address on file but i am planning to change to texas address.

[ToddL99 · Accepted solution]

If you were only a resident of Michigan for January 2020, then you only owe MI tax on income earned that month. Once you became a resident of Texas, then any income you made for the rest of 2020 is considered as earned in Texas. Income on the sale of stocks , bonds, mutual funds, etc. is sourced to the state were you resided at the date of the sale.

Answer the Personal Info questions correctly and the program will direct you to file a part-year resident return for Mi, only, since Texas does not have an income tax.

It doesn't make any difference what address your brokerage firm has, although you should tell them to change it to Texas. 

What makes you a resident of a state (or country)?  

Generally, you're a resident of a state (or country) if you intend to either stay there permanently, or return there after a temporary absence. It's where home is – where you come back to after being away on vacation, business trip, overseas or out-of-state employment, or school. Many factors are considered, not the least of which are where you are registered to vote, own homestead property and are licensed to drive. 

Residency rules vary from state to state. For example, if you spend more than a certain number of days in some states, you're considered a resident whether it makes sense to you or not. If you have any concerns, check with your State Department of Revenue for specific residency rules, especially as they apply to your particular situation.  

[nishantgupta01]

A followup question to my original question. Do i have to declare to my michigan work company that i have moved to texas? if i don't, will that affect my michigan state taxes on my stock sale?

[ToddL99]

You might want to notify your Michigan employer that you have moved to and are working from Texas (unless they have some internal policy against that). Doing so might result in them not reporting your income to the state of Michigan.

Michigan tax does not apply to any stock sales made while a resident of Texas.  Income on the sale of stocks , bonds, mutual funds, etc. is sourced to the state were you reside at the date of the sale.

[nishantgupta01]

let's say i don't tell my employer that i have moved to texas and they withhold my state taxes for the whole of 2021 and report my income to Michigan state. Then in 2022 when i file my taxes, Will i able get my taxes (refund) back from michigan state when i file non-resident michigan state taxes that my michigan employer withheld (february onwards)?

[ToddL99 · Accepted solution]

Yes, if you can show that you were a resident of Texas and worked from Texas from February 2021 on, then you would file a part-year resident MI return and  get a refund of MI taxes withheld (from February on).

(You'd only have to show proof if MI asks for it).

[nishantgupta01]

Thanks for your help. i appreciate you taking time to answer my questions.