I sold a timeshare in HI at a loss but state return is taxing the proceeds

[bdiicmm]

I am in the process of completing my non-resident return for HI. My Federal return records the loss on the sale, but HI return wants me to pay tax on the income from the proceeds nonetheless. What am I doing wrong?

[Vanessa A]

Where do you see that it is taxing the loss on the sale?  There is nothing to tax if you had a loss.  Is it showing a loss or is it showing a gain?  If it is showing a gain, did you go through all the interview questions to enter your cost basis in the property?  If not, you will need to walk the entire way through all the HI questions to be sure nothing was missed.  

[Mike9241]

@bdiicmm sorry, but for federal and state purposes you're not allowed to deduct a loss on sale of a personal use timeshare.  

If you’ve experienced a loss on the sale of a timeshare in Hawaii in 2023, here’s how you can handle it for your state taxes:

Report the Sale: Even if you incurred a loss, you should still report the sale on your tax return. Show the gross proceeds from the sale on Schedule D, as reflected on Form 1099.
Offset the Loss: While the loss itself may not be deductible, you can offset the proceeds with an amount that brings the net gain/loss to zero. Essentially, you’ll show the sale but adjust the numbers to account for the loss.

note that if you take a federal deduction for the Hawaii state taxes in 2023, when you receive the refund in 2024, some or all may be taxable.  

[bdiicmm]

Thanks, I understand what you’re saying and handled it on the Federal return, but cannot see how to enter the reduced proceeds on the HI State return other than to enter an income amount different from what is on the 1099-S

[bdiicmm]

Vanessa,

I entered the cost basis on the Federal return which acknowledged the loss. I have a carryover loss on my Federal return so gain no further advantage there, which I understand.

The problem comes with the HI form which only allows me to enter the gross proceeds from my 1099-S (unless I misunderstand the directions), resulting in a payment to HI of $420 when I actually had no taxable income.

[MonikaK1]

Enter all of your income items in the Federal return. Report the 1099-S for the timeshare in the Federal return in the Investments section and identify it as a second home so that the loss is nontaxable.

In the Hawaii return interview, go through all of the screens where it lists your income items and asks how much should be attributed to Hawaii. When you get to the screen that lists capital gains and losses, make a zero entry for the Hawaii property if it is showing a gain in the Federal column. You wouldn't show a loss since the loss is not deductible. 

By reporting the 1099-S on the Federal return, you have taken care of the reporting requirement.

See this TurboTax tips article for more information on selling at a loss.