credit for taxes paid to other state

[jharmon92110]

I am a California resident and I received real estate rental income from New Mexico.  I paid taxes to NM on this income. In Turbotax State for CA under State Taxes, I entered the income that was taxed by NM as well as the taxes paid to NM. However, after completing this section, TurboTax says "You have no CA credit for tax paid to New Mexico".

According to the CA tax code, I should be eligible for this credit. 

[AmyC]

Correct. Your resident state taxes all income but gives a credit for income taxed by another state. Please carefully follow these directions.

You will need to prepare both CA and NM in a special order. You may need to delete both states and begin again.

1. First, prepare your non-resident NM  return. This creates your tax liability for the non-resident state.
2. THEN prepare your resident state CA return and it will generate a credit for your income already being taxed in the non-resident state.
3. The credit will be the lower of the state tax liabilities on the same income. You may owe your resident state.

It isn't possible for the program to create a credit before it knows the liability. Your returns may be wrong if you do not prepare the states in this order.

If you followed these steps and the credit is not showing, you may want to contact a specialist that can work through that section of the return with you.    

[jharmon92110]

I received this income as one of the Trust beneficiaries. The fiduciary has filed the NM tax return along with the full tax payment owed by all the beneficiaries. I was instructed by the fiduciary to include two forms with my CA tax return to substantiate the credit I am claiming:

1) Schedule E, filed with the Trustee's 2019 Federal income tax return (by the fiduciary)

2) New Mexico Form Fid-1, Fiduciary Income Tax Return for 2019, with me listed as beneficiary

[jharmon92110]

Can I expect a reply to my followup question?

[DaveF1006]

Did you file a NM non-resident state return? If you would have done this NM would have taxed you on the rental income and given you credit for the tax you paid to NM.  You would then prepare your California resident state return and the information should flow from your NM non-resident return to your California State return.  it is important to do your NM non-resident return first. This is the proper workflow in allowing Cailifornia to give you credit for the tax paid in NM.

[jharmon92110]

Dave,

Thanks for the reply, but please read my earlier response to Amy C. Her advice was the same as yours. The issue, as I explained, is that the NM tax return has already been filed by the fiduciary, paying the taxes on behalf of myself and the other beneficiaries of the estate. I cannot submit my own NM tax return. How can I enter the needed info into Turbo Tax to get me the credit without filing a NM return?

[JohnB5677]

You said this was a Trust that generated the income.  The trust should have filed a 1041 tax return which would have generated a K-1.  The K-1, not a schedule E should be used to report that income.

[jharmon92110]

I was instructed by the fiduciary to enter the Trust income figures into both Schedule E and 1041/K-1.   I tried backing out the Schedule E portion, but Turbotax still would not give me tax credit for California.

Nevertheless, I think I found the problem:

State Taxes > California > Credits and taxes > Edit > Personal, home and family credits > Other State Tax Credit > Revisit
State: NM > Edit
Other State Tax Credit > Other State: New Mexico > Continue
real estate income > Edit
Type of Income: real estate income
Income Taxed by California:
Income Taxed by New Mexico:

The first time through I had entered $0 for "Income Taxed by California" thinking that at this point, Turbotax had not yet factored in the NM income. Otherwise, why would it be asking me to provide that NM figure here?  To fix, I entered the same income figure previously entered in Schedule E and 1041/K-1 for CA and NM. Turbotax then gave me the expected CA tax credit.

Why doesn't Turbotax pre-fill the boxes for income taxed by CA and NM with the income figure I had already entered into Schedule E and 1041/K-1?  That would have saved me a lot of time and confusion.

[trisul]

Hello: 

My case is that I am a NM resident and I have income from CA (rental and S-corporation business). 

I have been getting query for last two years from NM. 

Is that order of filing important? Should I first fill out CA returns and then NM? 

Please let me know. 

Thanks