Turbotax seemingly applying out-of-state trust beneficiary income to the wrong state.

A relative of mine died last year, and I received an inheritance that consisted of interest, dividends, capital gains, and "annuities, royalties, and other nonpassive income or loss before directly apportioned deductions". However, she lived in a different state than me; I live in Maryland and she lived in Illinois, with the trust matching her state.

I received K-1 and K-1-T forms to file my taxes with, and while doing my federal taxes I used Turbotax's step-by-step mode to input the K-1 form. However, while doing my state returns, I realized that Turbotax had applied all of the various types of income to the Maryland return instead of the Illinois one.

Is that supposed to happen? I'm a bit lost on how this kind of inter-state taxation works, so I'd like some help on what I need to do, if anything.

210

Expert Alumni

Apr 7, 2022 10:12:46 AM

You need to prepare your non-resident state return first in order to be able to allocate the income correctly. To do this in TurboTax Online you can follow these steps:

Within your tax return click State in the black menu bar on the left of the screen
Click Continue to the screen that lists both state returns
Use the trash can icon to delete the resident state return (Maryland)
Click Edit for the Illinois return and progress through the interview
When you return to the Status of your state returns screen click Add another State and choose Maryland

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Turbotax seemingly applying out-of-state trust beneficiary income to the wrong state.