Two houses; Domicile in UT, part time in CA. How split income for taxes

[Marc22]

I worked in CA, retired, and receive a pension from the company.  I am also a military retiree. I am now fully retired. I do receive some deferred income from my previous CA employer.  

I now own a home in Utah and in California, living part time in each.  We plan to change our domicile and make Utah our new domicile.

For paying state taxes to each state, do we:

1. Declare all our income on the Utah state tax return (domicile state), and only a portion on the 2nd state of CA (based on days spent there), or
2. Divide up income by time spent in each state, and file a proportion of that income on each state return? Or,
3. Do you allocate the income based on the date that the pension check or dividend checks were received, and what state we were in during that time?

Some posts on similar questions state you proportion the income, and others say you must declare all income in the domicile state

I note that in TurboTax it asks you when you moved to the second state to determine your time spent in that state.  If you ae going back and forth, do you just make up a date that would include the total days you spent in the 2nd state? E.g. If I spent 3 months in the 2nd state I would make believe I moved there 1 October (1 Oct -31 Dec = 3 months), and do this every year?

If you are allocating income based on the dates received and where you were, how do you do this in TurboTax?

FYI,  the Utah tax authority states: ‘’A part-year resident is a person who is a resident for part of the year and a nonresident for part of the year. All income received during the period of residency is taxable in Utah, regardless of where that income is earned, unless specifically exempted.

The CA Tax authority states: ‘’As a part-year resident, you pay tax on all worldwide income while you were a resident of California.’’

[TomD8]

You stated: "We plan to change our domicile and make Utah our new domicile," which implies that you are still domiciled in California.  Here are California's rules regarding change of domicile:

A change of domicile requires all of the following:
• Abandonment of your prior domicile.
• Physically moving to and residing in the new locality.
• Intent to remain in the new locality permanently or indefinitely as demonstrated by your actions.

https://www.ftb.ca.gov/forms/2020/2020-1031-publication.pdf

Here are the general principles:

Your state of domicile can tax ALL your income, regardless of its source.  Other states can tax you only on income sourced within that state. 

If your domicile changes during the tax year, you are a part-year resident of each of the two states for tax purposes.  In this case you would allocate your retirement income between the two states according to when you received it.  Retirement income is taxable by your state of domicile at the time you receive it.

If your domicile does not change during the tax year, for tax purposes you are a resident of your domiciliary state, and a non-resident of any other state in which you have a filing requirement.  In that case your entire retirement income would be taxable by the domiciliary state.

Deferred work income is normally taxable by the state in which it was earned, as well as by the state of domicile when received (if different).  If the income is taxable by two states, the domiciliary state will normally grant a credit for the taxes paid to the other state, so as to avoid double taxation.  

You can only have one domicile at a time.

[Marc22]

So I understand that I pick a domicile state, and because my deferred income arrives every month while I am in both states, then, I will be a part time resident in the non domicile stake?

How do I allocate income and time in TurboTax?  The only option that I saw was in the personal section where you state what date you moved from one state to another.  

In my case I am going back and forth all year, and receiving deferred income every month.  It would be nice in TurboTax asks when you received income and you can fill in a calendar that shows where you were all year.

[DianeW777]

TurboTax is not able to determine how much income you actually received in each state or if it was received evenly throughout the year.  It gets complicated for any software in cases like yours where you are in both states at different times of the year.

Do you just make up a date that would include the total days you spent in the 2nd state? How do I allocate income and time in TurboTax? 

• To file as a part year resident in each state you should determine the number of months for each state, then in the software you will be able to select a change date to reflect the number of months in state one, and the rest of the year in state two.  Have the income information available for each state, so that when you are in the state interview for each state you will be able to make the necessary adjustment.  
• If you receive a Form 1099-R, you can put both states in the entry with the correct amount for each state and it will carry over the right amounts in each state. If the income is on a different form you will be able to adjust in the state interview.

[TomD8]

"So I understand that I pick a domicile state, and because my deferred income arrives every month while I am in both states, then, I will be a part time resident in the non domicile stake?"

No.  In tax terminology, there is no such thing as a "part time" resident.  You are either a resident, a non-resident, or a part-year resident.

A part-year resident is someone who literally moves his domicile - his main, primary, permanent home - from one state to another during the tax year.

A non-resident is someone whose domicile does not change during the year, but who has a tax-filing obligation in a non-domicile state.

Here are CA's criteria for determining which state is your domicile state:

• Amount of time you spend in California versus amount of time you spend outside California.
• Location of your spouse/RDP and children.
• Location of your principal residence.
• State that issued your driver’s license.
• State where your vehicles are registered.
• State where you maintain your professional licenses.
• State where you are registered to vote.
• Location of the banks where you maintain accounts.
• The origination point of your financial transactions.
• Location of your medical professionals and other healthcare providers (doctors, dentists etc.), accountants, and attorneys.

https://www.ftb.ca.gov/forms/2020/2020-1031-publication.pdf

The importance of all this is that your state of domicile can tax ALL your income, regardless of its source.  Other states can only tax income that is "sourced" within that state.

[Marc22]

A follow on question: 

Instead of using time as a separator of income, can you divide income, especially unearned income into two groups, and enter the values separately into both state returns?  

The case where this would be important is if you sold a lot of stock on a particular day, you would want to sell it while in the state with the more favorable state tax treatment.  If you separated income by the date you left the state to model time in the state, I am thinking that TurboTax could not separate the income correctly.

[Marc22]

Thank you Tom for your advice.  I would like to clarify what you said.

If I am domiciled in CA and are not moving, but just live in Utah part of the year and CA the other part of the year, I am a full year resident of CA and a part year resident of Utah; rather than part year resident of each state?

So I would be fully taxed in CA and part taxed in Utah, and just hope to get credit from CA for the money I pay Utah?

Thanks again

[TomD8]

@Marc22 --

Q:  "If I am domiciled in CA and are not moving, but just live in Utah part of the year and CA the other part of the year, I am a full year resident of CA and a part year resident of Utah; rather than part year resident of each state?"

No.  If you are domiciled in CA all year, for tax purposes you would be a full-year resident of CA and a non-resident of UT.  In that situation ALL your income is taxable by CA, and UT could tax you only on UT-source income.  Some examples of UT-source income would be income from work carried out in UT or rental income from a property located in UT.  Unearned income such as retirement income or capital gains would be taxable only by your domiciliary state of CA.

If you had UT-source income and thus had to file a non-resident UT tax return, CA would give you a credit.

In the Personal Info section of TurboTax, you would enter CA as your State of Residence, and you would answer NO to the question about living in another state.  If you had UT-source income, you would enter UT in the Other State Income section of Personal Info.

Again, a part-year resident is someone who literally moves their domicile from one state to another during the tax year (their main, primary residence).  If your domicile is CA, you remain a resident of CA for tax purposes, no matter how much time you spend at a second home in another state.