Do I include total fed income on OH return if it includes capital gains sale of property in Colorado? (I moved half way through the year). Double taxation??

[adnelk]

I sold a rental in Colorado, which increased by federal income significantly.  Let's say 100K. Then, I moved to Ohio. In Colorado, I qualify for an exemption to the capital gains, so yippee, I don't have to pay state taxes on the gains (it wasn't my primary home, but there was another Colorado exemption). But when I went to file my state taxes in Ohio, the program copied over my entire federal income, which included the 100K, so Ohio taxes the 100K as if it was regular income.  I didn't pay Colorado taxes on it, so I can't claim "taxes paid to another state" as a deduction. Is that right??  I have to pay state taxes on a property I sold in Colorado before I moved to the state????  If not, how do I reduce the income for Ohio by the capital gains from the sale of the property?

[Hal_Al · Accepted solution]

If you sold the property before you moved to Ohio, then it is not taxable by Ohio. When you go thru the income allocation screens identify it as CO income (the actual term may be "non Ohio income").

Incidentally, although Ohio taxes capital gains, the capital gain on the sale of a rental house qualifies for Ohio's Small Business deduction (SBD). So, even if you sold it after you moved, you would not pay OH tax on it.

Yes, you have to include all your Federal adjusted income (AGI) on your Ohio return, But,  It only appears that Ohio is  taxing all your income.

Ohio does a convoluted tax calculation for non-residents/part year residents. It calculates tax on total income, then it calculates a non resident/part year resident credit, which it subtracts from the tax it calculated on the total income. The credit is calculated as your non-Ohio income divided by Total adjusted Income multiplied by the total tax. TurboTax (TT)   does this by allocating your income as either Ohio or non-Ohio. W-2 income will be allocated by the state name abbreviation shown in box 15 of your W-2. TT will ask you, item by item, in the state section, how much of your other income is Ohio or non-Ohio income. Make sure that your non-Ohio wages show CO (Other state postal abbreviation)  in box 15 of your W-2 screen, with the CO amount in box 16.

This system allows Ohio to apply their highest tax rate, based on your total income, while only taxing your Ohio income.

[adnelk]

Hal, you just saved me a ton on $.  Thanks!   I wasn't aware of the SBD and wouldn't have even considered it.