Getting taxed in Maryland for real estate sold in North Carolina.

[ssmith8523]

I sold a rental property in North Carolina that I have owned for 20 years. I am a full time resident of Maryland. Yet Maryland appears to be taxing me for long term cap gains of $182,104. (I know I have to pay LTCG in North Carolina.) Looking at Sch E Activity Worksheet in my MD return, it shows "Net profit allowed" 182,104 and  Net Federal Profit Allowed 182,104, and "Federal/State Adjustment" of 0.  I suspect that that last field should be -182,104 but I can't edit it.  What to do?

Thank you.

[MaryK4 · Accepted solution]

You are required to pay North Carolina income tax on the sale since the property was located in North Carolina.  As a full-time Maryland resident, you are taxed on all worldwide income, including the North Carolina rental sale. You will be able to claim a credit for the taxes paid to North Carolina on your Maryland return so that you are not double-taxed.  The adjustments are not made on the Schedule E.

To claim a credit for taxes paid to another state in TurboTax, prepare your non-resident state return first, then your resident return. TurboTax will ask if you made money in another state; answering "yes" and completing the non-resident return allows the software to calculate the credit on your resident return.   The credit will be the lesser of the tax paid to North Carolina or the Maryland tax on that same income. This credit will then reduce your Maryland tax liability dollar-for-dollar up to that limit.

[ssmith8523]

Thank you. I wasn't planning to file North Carolina taxes on Turbotax, just to do it manually. So Intuit gets another $40 out of me for a second state filing!

[NCperson]

@ssmith8523 and another $25 if you e-file 🙂