Idaho Income Taxes Moving to Washington and IRA Distribution

[soundmax]

Hello,

My Family moved to Washington from Idaho and had to cash in IRA to help purchase house in Washington.  This was done 2 weeks before we purchased the house in Washington, but we could not purchase house without cashing in.  We also had Covid in 2020 so claiming the Covid hardship for this distribution.  Then after we moved I did one more IRA distribution before 2020 ended, but after the purchase of the new house.  For Idaho income tax is the IRA before the purchase taxable and the amount after the house purchase not taxable in Idaho or is any of it taxable since used for house in Washington?  Do the same rules apply to Idaho to spread over 3 years and not pay the early distribution penalty due to CARES act for Covid?  And do I have to claim it in Idaho after this year and file after this year if it's not all claimed this year?  Thank you!

[DaveF1006]

Yes, you may spread the taxable amount of the distribution over three years. If you decide the claim 1/3 of the distribution this year, you need to file an Idaho state return for the following two years so that Idaho can capture the tax from the full amount of the distribution. 

Idaho, in in full conformity of the federal tax code as it reports 1/3 of the distribution this year.  It begins with reporting the federal AGI, which includes 1/3 of the distribution. 

As far as for the purchase of the home, this only waives the 10% early withdrawal penalty and doesn't affect regular taxation either on the federal or state level.

[soundmax]

Dave,

Thanks for the answers.  One more question.  If I need to follow up with filing for 2 more years in Idaho and I am spreading $55,000 over 3 years or $18,333 per year.  When I file for the next 2 years will I still be able to take the Idaho Itemized/Standard Deduction (now $24,800 per year) without making any other income in 2021 and 2022 since I now live in Washington and work in Washington.  So that would wash out the $18,333 income for the IRA deferral for the next 2 years?  Or since it is from 2020 is it just a continued tax from 2020, just paid in a different year?  Also, is that amount void from penalties and interest per the CARES act?  Thank you!

[ReneeM7122]

You shouldn't have to file a state tax return any longer, unless you are still employed in the State of Idaho while living in WA.  WA State has no tax return.  All you need to do regarding the tax on the distribution is to write a check to the state of Idaho and send it timely at the end of the year when you do your federal taxes.  Do this in 2021, 2022 and 2023, and you're golden.

[soundmax]

Hi Renee,

Thank you for the reply, but this now brings up another question.  write a check in 2023?  If I do it for 2020 return, do you mean just 2021 and 2022 (three years?)  Also, are you saying that I am paying the whole 2020 liability and the standard deductions for 2021 and 2022 do not count since this was withdrawn in 2020 even though claimed under the CARES act over 3 years?  Can I claim the deduction in 2021 and 2022 is really the question I am trying to get answered.  Thank you!!

[DaveF1006]

Yes, you can still claim the deferral in 2021 and 2022 per Idaho rules. I would suggest filing an Idaho non-resident declaring this deferral of income for the 2021 and 2022 tax years.Mailing a check in 2022 and 2023 without a reference could be risky if this check is misplaced.

[soundmax]

Thanks again.  The big question, that is not getting answered here is will I still get the yearly standard deduction for Idaho in 2021 and 2022 that would ultimately eliminate my liability for 2021 and 2022?  So, in 2020 I am getting the standard deduction (just over 24K for my wife and I filing as a married couple).  Since this is spreading over 3 years at 55k or (18,333 per year) will the standard deduction of over 24k per year wipe out the tax liability in 2021 and 2022 for the Idaho filings in 2021 and 2022?

[ReneeM7122]

The standard deduction applies to your Federal tax return.  Here's a TurboTax video with more information about it. 

The payments that are being spread over three years from your Idaho tax return will stay within the Idaho state rules / standard deduction, etc.  and it will not change due to the fact that you moved to WA.  

Receiving a standard deduction every year does not wipe out your tax liability. It lowers your taxable income in the year that you file and can't be applied to a past tax arrear.