Do I have to pay capital gains tax in AZ on the sale of farmland in IL?

[coyner4]

I live in AZ. The farmland was inherited.

[DS30 · Accepted solution]

Unfortunately yes. You will need to report the capital gain from the sale of inherited IL farm property on both an IL nonresident state income tax return and your AZ resident state income tax return. You will get a credit on your AZ resident state income tax return for IL taxes pay on IL-source income that is taxed in both states.

If you are a permanent resident of AZ but you have a capital gain from IL property then you will need to file an IL nonresident state income tax return (for your IL-source capital gain only). You will also need to file an AZ resident state tax return (for all income from all sources including IL sourced capital gains). You will get a state income tax credit in AZ for any IL state income taxes that you paid on your nonresident IL state income tax return.

You will want to work on your nonresident IL state income tax return first. You will then take a tax credit from your nonresident IL state income taxes on your resident AZ state income tax return. (Please note that you will only get a tax credit for your IL state income taxes up to the amount of AZ state income taxes that would have been paid if the income was earned in AZ).  The credit for taxes paid to another state section will be at the end of your residence state's interview process.

Just follow the TurboTax guide when working on your states (remembering to do your nonresident state return first) and TurboTax will do all the calculations and credits to your resident states return

Here is additional information about filing in multiple states (select "see more answer" to view the entire attachment)

https://ttlc.intuit.com/replies/3300797

[wfuller]

This thread is several years old, but hopefully someone can help.  I sold a property in CO where I am a part-time resident.  I did as instructed and completed the CO return before the AZ return (where I am filing as a resident).  Where should I be able to see the credit on the AZ state return?

[MonikaK1]

Arizona uses Form 309 to figure your credit for taxes paid to Arizona and another state or country on the same income. Individuals claiming this credit must also complete Arizona Form 301, Nonrefundable Individual Tax Credits and Recapture, and include Form 301 and Form(s) 309 with your tax return to claim this credit.

See here for the instructions for Arizona Form 309.

Complete the interviews for both states in TurboTax, and the program will complete the needed forms from your entries.

You can preview your return before filing to review the forms that TurboTax has prepared from your entries and to find out how your taxes were calculated. See here for details. 

See also this TurboTax article and this one on multiple-state situations.

[wfuller]

Thank you.  Can you think of a reason why Turbotax would not have generated AZ Form 309?

[TeresaM]

Please check My Info in the Federal return and be sure the box is checked for Made money in another state

[wfuller]

I did note that I made money in Colorado as well as AZ in my Federal Return.  Any other ideas why Turbotax would not generate the appropriate form?

[DianeW777]

It's not clear.  If you are a part year resident in each state then there is no credit. If you are a resident of Arizona (AZ) then you completed them in the correct order.

Possible solution:

Check the Colorado (CO) return first, write down any gain attributable to the sale, then write down the tax that is actually calculated on the CO return.

Next go to the AZ return and watch for a screen that asks about a 'Credit for taxes paid to another state', and enter the numbers you wrote down.

Final option is to delete your resident state, complete the CO, then add your resident state back to your file.  TurboTax will handle it from here.

[wfuller]

Got it this time - thanks to all for assistance!