How should I file a nonresident Maryland return for sale of sale of an inherited house?

[leonard286]

My mother, who lived in Maryland, made my two sisters (both Maryland residents) and me (a Virginia resident) co-owners of her house a couple of years before she died.  When my mother died, my sisters and I became sole owners of the house.  We spent about a year and a half getting the house ready for sale and then selling it.  One of my sisters lived in the house for a portion of this time.  When the house sold, we split the proceeds equally.  Since I was not a Maryland resident, at closing, 7.5% Maryland tax was withheld from my share.  I will need to file federal, Virginia resident, and Maryland nonresident returns.  My questions are: Is the profit from the house considered an inheritance or just sale of a property I partially owned (is this distinction even important in any way)?  Am I correct in assuming that I report only the house sale proceeds on the Maryland return and do not report house sale proceeds on the Virginia return?  Elsewhere I read that in a case like this, the nonresident return should be completed first in TurboTax, followed by the federal and resident state return.  Is it important to do this?  Any other considerations or pointers on this situation?

[CarolynM · Accepted solution]

First, I am sorry for the loss of your mother.

You should report the income from the sale on your federal and MD. You need to complete your federal, then MD non-resident return, then the VA resident tax return. This will allow you to get state tax credit in VA.

To enter in TurboTax Online Premier, 

Go to Income & Expenses

Scroll to Investment Income

Click Stocks, Mutual Funds, Bonds, Other

TurboTax will then ask all the questions necessary to enter these proceeds and import into your MD non-resident tax return. 

You have both inheritance and co-ownership property. For your cost basis, you will average the two amounts

For example:

You became co-owner in 2010 when the fair market value of the home was $200,000. You have a cost basis of $50,000 (1/4 ownership)

You inherited in 2017 when the fair market value of the home was $240,000. You have a cost basis of $80,000 (1/3 ownership)

Your total cost basis at the time of sale was $65,000 (average of $50,000 and $80,000