nonresident income allocation for home sale proceed

[mjc4maureen]

I will greatly appreciate it if someone can answer my question below:

I sold my house in Virginia in 2019 when I live in Seattle.   The capital gain is $100,000.  Do I enter the amount in "Other Income" of nonresident income allocation page of Virginia state return?   In fact , "Other Income" in Federal return column now is $0.  But I don't know where else I can enter the amount for the state column if not under "Other Income".   Furthermore, per Federal return, I offset the capital gain because I have capital loss $150,000.  As a result, I paid no tax for Federal return for that matter.  What should I do in this case for Virginia state?  Please help and advise.

Thanks,

Maureen

[Hal_Al · Accepted solution]

No, do not use other income. Other income is line 11 of the Non resident allocation percentage section of form 763. Line 6 is for Capital gains. TurboTax should have automatically filled line 6, column A with (-)$3,000 your net allowable capital loss on the federal return.  In the interview it will give you a screen to enter the VA amount (+$100,000 in your case).

But, you say "my house" and "home sale". Was this your primary  residence? If so, why are you not claiming the home sale exclusion on the federal return?  If you do, the 0 capital gain transfers to the VA return and the $100K isn't taxed.

[mjc4maureen]

Thanks for your valuable response.  I really appreciated it.  

I did claim the home sale exclusion of $250K.  After that, I still have $100K taxable gain.   However, I sold the company stocks with $150K of taxable loss.  I offset it so I owe no tax to Federal for this matter.   Can I apply the same principle for Virginia?   If not, I will need to enter $100K taxable gain to Line 6, column B (Virginia source) of nonresident allocation percentage section as right now Line 6, column A (i.e. All sources)  filled with -$3000.   Do I understand you correctly? 

P.S.  I was hoping not to owe Virginia.

P.S.  The company stocks (Freddie Mac) I sold were all I purchased when I lived in Virginia.  Does it carry any excuse not to owe Virginia?

I look forward to hearing from you again.  Thank you so much.

Warm Regards,

Maureen

[Hal_Al · Accepted solution]

It is my understanding that a  capital gain or loss is allocated to the state you resided in at the time the gain/loss was "realized" (where you were living when it was sold).  So, the $150K loss cannot be allocated to VA.

So, you must report only the $100,000 gain on the VA non resident return.  

[mjc4maureen]

You are super knowledgeable.  I am impressed and grateful for your response.    Got it.

Based on what I learned from you, may I ask you a related but different question?

I also have Capital Loss Carryover short term and long term of $47,000 which was realized when I lived in Virginia.  So can I subtract that and report my capital gain of $53,000 (instead of $100,000)  for home sale to Virginia?

I look forward to your response soon.  Thank you so much.

Warm Regards,

Maureen

[Hal_Al]

Yes!

TurboTax is not going to be able to do the calculations.  You will have to do that manually. Whether you can deduct the full $47K depends on in which year the loss was realized. If it was realized in 2018, use the full amount.  If it was an early year, you'll have to reduce it by the $3000 per year you previously deducted (or by any amounts you used  on previous year returns to reduce capital gains).

[mjc4maureen]

Wow, you are very good.  Thank you.

The loss was realized over multiple years since 2015.   In that case, I'll subtract 3 years of $3,000 from $47,000 carryover loss.  The 3 years are for 2015, 2016 and 2017.

So I'll deduct $38,000 instead of $47,000 to reduce home sale capital gain in my case.  Yes? 

Warm Regards,

Maureen

[Hal_Al · Accepted solution]

Yes.

[mjc4maureen]

I went overseas and just returned.  Sorry for the delay reply.

I dug a deeper for captain gain/loss.  I actually had $6000 gain in 2014.   

[mjc4maureen]

I went overseas and just returned.  Sorry for my delay reply.

I went back to see all my tax returns to make sure I calculate correctly.

2014 - I filed $8,000 capital gain 

2015 - I filed -$3,000 capital loss (I sold stocks and had a loss of $41K)

2016 - I filed -$3,000 capital loss

2017 - I filed - $3,000 capital loss

2018 - I filed -$3,000 capital loss (Note:  I filed part-year Virginia Tax Return because I became a resident in Washington state on June 30, 2018). 

With that, does that mean I need to subtract additional $1,500 from carryover loss of $47,000? 

As a result, I need to subtract total of $10,500 from $47,000 carry over loss?  In other words, I can use $36,500 to offset some of home sale, right?

I look forward to hearing your advice.

Thank you so much,

Maureen

[Hal_Al · Accepted solution]

Q.  I need to subtract total of $10,500 from $47,000 carry over loss?  In other words, I can use $36,500 to offset some of home sale, right?

A. No, subtract $12,000 from $47,000 carry over loss and use $35.000.  The fact that you were only a part year resident, in 2018, doesn't matter, because it was the original  $47,000 that was allocated to VA.  So, the entire $3000 loss deduction, in 2018, would also be allocated to VA, even though you filed as a part year resident.

[mjc4maureen]

Great answer.  I totally got it.  Thank you so much.

BTW, my friend in Virginia asked his accountant who said I would just follow Federal tax return so I would pay no tax for Virginia either for home sale. 

I wasn't sure that was correct answer so I decided to post my question in Turbo Tax forum discussion.  Glad I did.  Glad you were patient with me and super knowledgeable.  I wonder how Virginia tax accountant could make that kind of assumption.   You must be a CPA or work for Turbo Tax of some sort.  Thank you again.

[Hal_Al]

Thanks for the compliments. I'm not a CPA or a TT employee.  If you have  a VA accountant telling you something different (even 2nd hand) ; I would  get a another opinion. 

I'm gonna flag this to a TT employee and see if we can get another opinion.

[mjc4maureen]

Thank you so much for following through further.   I sincerely appreciate the attention you have bestowed upon me.  You are very kind.

I hate to lose you by posting a different subject and lose the connection with you.   May I ask you a different question totally here?  If I must post a separate subject, I will.

Here it goes. 

I rented my Virginia home starting June 2018 and sold in December 2019.   In 2018 tax return, for the rental, I depreciated a bathroom remodel (occurred in 2018) for $200.  That is it.  I forgot to depreciate the entire house of home improvement, addition, etc in 2018 for the rental.   Now, in 2019 tax return, for the home sale cost basis, I increased cost basis by adding the entire home improvement, addition of $80,000 and decreased cost basis from the depreciation of bathroom remodel of $200 (in 2018) and $400 (in 2019).   Am I good? 

Hope to hear from you again.  Thank you sir.  To pay forward, I like to help others file tax return in the library.  Simple cases not like mine though.  Haha..    

[Hal_Al]

It's usually best to post a new subject, as a new post.  More experts will see it.

That said, since you rented it out, you have more issues than just cost basis.

Basically yes, you've done  the cost basis correctly. But it has to be entered on the forms in a specific manner.  You add the $80,000 to your cost basis.  Then enter the depreciation separately for "Depreciation recapture" which is taxed separately (but still subject to offset by capital losses). 

When a rental is sold, depreciation "allowed or allowable" must be recaptured.  That is, you must recapture the depreciation you didn't claim on the whole house.  You may want to amend you 2018 return.  You should also include the 2019 depreciation (for the time rented) on your 2019 Schedule E.