Sold property in FL (large capital gain) moved to VA (no income). Why do I have taxable VA income?

[wes13]

First, I've spent about 24hrs on this one problem. More than my whole return. Also spent over 6hrs with multiple live agents with no success. 

Issue: Sold house in FL with ~$132k gain in Aug. Moved to VA in Sep (no income). TurboTax calculates that I owe $6k in VA state tax (though I have 0 income allocated to VA).

When allocating income/deductions in VA state return I enter 0 for the $132k Capital Gains and 0 for 'Fixed date conformity subtraction' of $113k. Looking at the printed VA returns (760PY and Schedule of Income), I can see that TT pulls in -113k (neg) to Column A1 Line 8 of the Schedule of Income, which eventually leads to a VA AGI of 113k (though I have zero). 

Here's the short math...

VA AGI (113k) = Fed AGI (132k) - Income Outside VA (19k)

Income Outside VA (19k) = Fed AGI (132k) + 'Net fixed date conformity modifications' (-113k)

When I check the printed VA state return to see where the -113k is coming from, I find two documents 'Federal/State Adjustment Summary' and 'Activity Worksheet' (for the rental property I sold). I don't quite understand the TT forms, but there is an Asset Disposition table and the residential line makes up most of the -113k. Specifically, Federal Gain/Loss (C) 87k and Gain Adjustment (E) -89k, and Total Adjustment(G) of -83k. There are also adjustments for Roof -6k (remaining depreciation) and Passive/At-Risk/Other -21k (land). There is also a -3k depreciation adjustment included in AGI. These all total to the -113k that gets pulled in VA state return.

Three possible scenarios...

1. I didn't enter my property sale correctly (though I think I did).

2. VA is correctly taxing me on the sale of FL property and I owe VA a bunch of taxes (not fair!).

3. There is a bug with TT, specifically the negative gain adjustment that's being pulled into VA state return. Ideally, this number would be 0.

Help please :(

[ErnieS0]

You do not have to file a Virginia return if you do not have any Virginia income.

Taxable income from Virginia sources includes "income from the practice of a trade or business in Virginia" and includes, but is not limited to, wages and salaries earned while in Virginia, income from a business operating in Virginia, rental income from a property in Virginia, etc.

Virginia Source Income

[wes13]

Hi Ernie. Sorry, I stated I do not have any VA income just to simplify the case. I actually have $54 of income from savings interest allocated to VA so I do have to file VA return. Issue below remains. Any ideas?

[JohnB5677]

You do not have to file VA income tax because of the $54.  You can earn $11,950 if single, or $23,900 if married filing jointly without filing a tax return.

Also,  Virginia permits an exclusion on the gain from the sale of a principal residence to the extent allowed for federal income tax purposes.  Since you said the gain was $132 K,  under the $250/$500K exclusion limit

IRC § 121 provides that gross income does not include gain realized from the sale or exchange of a taxpayer's principal residence. A principal residence will qualify for the exclusion so long as it has been used as such for an aggregated period of at least two years during the five-year period ending on the date of the sale or exchange. In most cases, the exclusion can only be used for the gain on a principal residence once every two years. See IRC § 121(b)(3)(A).

Rulings of the VA Tax Commissioner 09-110

Therefore, you should not have to file a VA tax return.

[wes13]

No, I still need to file VA state return as I'm filing status 4 'separate but combined' as my wife has SE income after we arrived in VA (Sep). The income/adj are split between spouses on the 760PY so I can clearly see how the negative 'Net fixed date conformity modifications' is screwing up the VAGI calculations. I purchased the TurboTax desktop version so I could see the forms. Here is further info...

TT online pulls in 132k capital gain and 113k 'Fixed date conformity subtraction'. Both of these occurred while I was a resident of FL so I set to 0 when allocating income/paid for VA. 

Looking at the printed VA returns... TT pulls the -113k gain adjustment into 760PY A1 (Fed) Line 8 'Net fixed date conformity modifications'. When the 760PY INC and 760PY calculations are complete this results in a 113k VA AGI (for me, not spouse) and 110k taxable income (after prorated exemptions and standard deduction). That's obviously wrong. I did not earn 113k while in VA (I only earned about $54 in savings interest).

So where is this 113k coming from? Using TT Desktop and tracing the 113k backwards from source...
# 760PY INC (Schedule of Income)
Schedule A Column A1 Line 8 'Net fixed date conformity modifications' -113206
Income and Adjustments Allocation Smart Worksheet > Line 29 Fixed date conformity subtraction 113206
# Activity Worksheet (rental property address) L/T 4797-Fed/St Adjust
Part IV - Dispositions - Column Form 4797 Long-Term
10. Federal/State adjustment -110,668
...2a. Adjustments carried from the federal return -110,668
1. Federal income/loss 104,544
Part II - Regular Income/Loss
10. Federal/State adjustment -2,538
2b. Other depreciation adjustments -2,538
That's as far as the source links go. Focusing on the larger amount -110,668 I can see that it's also listed on another TT form 'Fed/State Adj' under Asset Dispositions. The rental property is listed as...
A. Description of Asset Sold - Residential (date acq and sold)
B. If reported on 6252 or 8824 then check (both empty)
C. Federal Gain/Loss 87,206
D. Accumulated Depreciation (1) State: 19,078 (2) Federal 13,805
E. Gain Adjustment -88,998
F. Other Adjustment (blank)
G. Total Adjustment (D1-D2+E+F) -83,725
There is also another asset line for 'Roof' with Total Adjustment -5,943 (remaining depreciation for new roof installed?). And another unrelated line below Passive/At-Risk/Other Adjustment -21,000 (this is the land value). These 3 total to -110,668. Plus the 'other depreciation adjustment' of -2,538 equals -113,206 which is what's getting pulled into 760PY Inc as 'Fixed date conformity subtraction' and grossly misrepresenting income earned while in VA. Any help you can provide would be greatly appreciated.