We sold a house in California but Colorado is trying to make us pay tax on the CA Form 593 amount as if it is Colorado income. How would Turbotax handle the Form 593?

[denise6]

According to our CPA, his software correctly calculated the Colorado state income tax add-back by not including the amount from California Form 593. I've read the instructions for the CA Form 593, and it appears we should NOT be required to include the amount as either federal or Colorado income. I need to know how Turbotax software would handle the amount on Form 593, since I don't have a way to experiment and take myself to that point in the program.

[TomD8 · Accepted solution]

This FAQ explains how TT handles CA Form 593 and how to enter the form:   https://ttlc.intuit.com/questions/2757572-how-do-i-enter-ca-form-593-real-estate-withholding

CA Form 593 shows CA real estate tax withholding; it does not show income. https://www.ftb.ca.gov/forms/2018/18_593.pdf

You would not enter withheld CA tax on a CO return.

If you're a CO resident with a taxable capital gain on property located in CA, the gain would be taxable by both states, but you'd be able to take a credit on your CO return for taxes paid to CA.

Don't know if this answers your question.

[denise6]

Colorado seems to be trying to count the CA withholding amount (about $5700) for the sale of the house as an add-back of a tax deduction to count it as income. Our understanding is that because it's a CA tax, CO can't count it as income. We did pay all the taxes on the gain (about $50,000) from the sale of the house.

[TomD8]

The program is correct.  Here's how it works:  
Both states can tax you on your full $50,000 gain.  On your CO return, you can't subtract the CA taxes and claim that your gain is $44.3K  (50K minus $5700 CA tax).  CO can tax you on the full $50K gain, but then CO will give you a CREDIT for the taxes you pay to CA.  Therefore you will not be double-taxed.  When you do your state returns, be sure to complete the non-resident return (CA) BEFORE you do your home state return (CO), so that the credit flows correctly.