Should my resident state tax increase when I have over $17k in losses in another state?

[asp1981]

When I enter the out-of-state income (which is a third of the total losses), my resident taxes decrease.

Then, when I enter my out-of-state losses (which are triple the income), my resident taxes increase.

This seems backwards to me and is growing very frustrating, any help is appreciated.

[DavidS127]

More information may help diagnose your issue.  For example, what are the resident and nonresident states, what activity generated the losses, and when you say "taxes decrease" do you mean the total tax, the payment due, or the refund?

[Hal_Al]

The way it works in most states, your report all your income and losses on your residence state return, regardless of where earned.

You then claim credit for any tax paid to a non-resident state.  If you had no tax in the non-resident state, because of losses, there will be no credit. But, your get to reduce your taxable income, in the resident state, by the losses in the other state. 

But for a definitive answer, we need to know what the states are. 

[asp1981]

Thank you and I am happy to provide more info:

• Resident state is Oklahoma.
• Nonresident state with rental property is Florida.

The property does not have assets, so I will not be completing a return for Florida (there is no state income tax in FL) and therefore will not have FL tax to deduct from the OK tax.

When entering the out-of-state income in OK, I have to choose "other state" because FL is not on the list.

I am baffled when I do enter the out-of-state income that my OK state refund INCREASES (I get more back). Then, when I enter losses on the following page that are three times the income, I then owe OK more taxes. This seems backwards.

[Hal_Al · Accepted solution]

Ignore FL.

When asked in the personal info section if you earned income in another state, answer no.  The purpose of that question is to see if you need to file another state return. You don't since you have no assets.

I'm not familiar with OK software. But, a  question about out-of-state income should not come up (in other state software) if you answer no, back in the personal info section, about income in other states.

Since you have a loss, on the rental property, an increase in OK refund is normal. You do not exclude the FL income/loss from your OK return.

[asp1981]

Deleted reply. 

[asp1981]

Thank you again for your reply Hal-Al, but I wanted to provide an update with the main details added as a reminder:

Resident State: Oklahoma

State with rental property without assets: Florida 

I changed the answer in personal info to "No" for out-of-state income. This did automatically remove FL from my state returns. I then deleted the OK state return and re-started it.

The question for out-of-state income or losses was still there. When I click on "Learn More," the very last line reads, "If these losses are subtracted from your federal income, they must be added back to your Oklahoma income"

Once I answer "Yes," I enter the income and then move to losses. Once I click on "Learn More" on the page for losses, it provides an example of a rental property owned out-of-state that was SOLD. Is this an important detail that means I only need to worry about property that was sold and not just a rental property that we owned throughout 2019?

Just as a reminder, you stated that the losses should RAISE my OK refund. However, they lower it.

[ThomasM125 · Accepted solution]

On your federal tax return, you are deducting losses sustained in all states. When your federal income gets transferred down to Oklahoma, it includes the losses from other states that do not belong to OK, So when you enter those out of state losses into your OK return, it increases your OK income, so that makes your OK tax increase.

So, when you assign those losses to your state program, it increases your state income because TurboTax removes those losses from your state tax return.

[asp1981]

Thank you so much for the clear and concise answer, that clears up everything! Thank you Thomas and may you and yours remain healthy!

[asp1981]

I had one more thought: TurboTax determined the standard deduction to be best. Is this in addition to my losses on the rental property? It made me wonder if, with the standard deduction, the rental property losses were even being deducted on my federal return.

[ThomasM125]

A rental loss is separate from the standard deduction. You would be entitled to both deductions.