sale of second home in a different state

[johnpwooldridge]

We live in CA and we sold a second home in AZ. The second home was never used as a rental or business. Do I report the income and capital gains in both CA and AZ?

[SharonD007]

Yes, you will report the capital gains in both states but will get a credit for the taxes paid to AZ.  Review your personal information to ensure that you selected that you made money in another state.  Complete your federal tax return first, then your AZ non-resident tax return and lastly your CA tax return.  Make sure that you write down the gain from you sale.  When you prepare your AZ tax return, enter the gain from your home sale when you are prompted. You will be taxed on that amount as an Arizona nonresident.  However, you will receive a credit for the amount you must pay on that income in Arizona for your California return. 

Please refer to the TurboTax Help articles Where do I enter the sale of a second home, an inherited home, or land on my 2022 taxes? and  How do I file a nonresident state return? for instructions.

[johnpwooldridge]

Thank you for your response. I already filled out most of my CA return before filling out the AZ return.  Should I delete my CA return and restart it after I complete the AZ return? Or can I download just CA again?

[TomD8]

CA and AZ are "reverse credit" states.  This means that a CA resident who has income taxed by both AZ and CA would claim the "other state credit" on his non-resident AZ return, not on his home state CA return.

Note that Section C of this CA tax reference specifically excludes AZ from the list of states for which CA residents can claim an other-state credit: https://www.ftb.ca.gov/forms/2022/2022-540-s-instructions.html

CA residents in this situation should therefore complete their resident CA return before doing their non-resident AZ return.

(Normally the "other state credit" is granted by the resident state; hence the term "reverse credit" in this situation.)

[Vanessa A]

No, you do not need to delete your CA return.  You can simply go back into the CA return and walk back through the return until you come to the credit section where you will enter the amount you paid to AZ.  This will not change your income or other items you entered so there is no need to start over. 

If you are using the download version of TurboTax, you will do this by clicking the CA tab at the top of your screen to switch to CA or you can click on the state taxes tab and then select edit next to CA. 

If you are using the online version, you will simply click the state tab then edit next to CA, after you are done with your AZ return.