out of state rental property

[thlo]

I sold an out of state rental property this past year that generated a loss on Schedule E but the "Sale of Business Property" shows a net gain. There were also capital loss carryovers that applied. It would seem that I need to file income taxes in that state, but when I add the return for the state, the turbotax software doesn't pull anything associated with the address of the property to be taxed. Am I supposed to allocate income to that state from my capital gains, and if so, how would I know how much to allocate?

[MarilynG1]

Yes, you should file a Non-Resident State Return in the state where the Rental Property was located, to report the sale.

In going through the State Interview, you will be able to indicate what income is to be included on the Non-Resident Return (all capital gains from sale of rental property located there).

Your Resident State will give you credit for Capital Gains tax paid to the non-resident state. 

Here's more info on How to File a Non-Resident State Return.

[thlo]

When going through the state interview, it just asks me to manually enter the capital gains allocation, but I don't know what capital gains were specifically generated from the sale of the property. Between the annual loss on Schedule E, capital loss carryovers, and depreciation calculated over the life of owning it, this seems more complicated that just the difference between purchase price and sale price. Is there any way to get the software to generate the number for me?

[KrisD15 · Accepted solution]

The Capital gain will be on Schedule D and 1040 line 7.

Depreciation Recapture will be on Form 4797 and Schedule 1 line 4.

Land does not depreciate, so any sale proceeds over the basis is Capital Gain.

The "Adjusted Basis" for the building is the Basis less depreciation. The remaining  gain (after accounting for the land) on the sale is first applied to the depreciation recapture, then if there is an gain remaining, it is capital gains. 

Depreciation is considered Ordinary Income

Capital gain is taxed at Capital gain rates

Both should be considered as income to the state where the rental was located.

If the losses were generated by the rental, no adjustment would be made. 

If the losses are from something else, the capital gain claimed for the state would be amount before the loss was applied. ,