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edselby
Level 2

How do I allocate unearned income when reporting in two states?

I see apparently conflicting answers to similar questions, so I would like some clarification.  We are reporting partial years in two states, CO and MT.  We moved mid-year from CO to MT.  We have rental properties in CO and we have mineral royalties from CO.  I believe both are taxed solely in CO, but reported to MT where credit is given for the CO taxation.  That effectively makes them solely taxable in CO.  As we are retired and our only other significant income is from Social Security, that makes the MT taxes minimal.  Am I on the right track?

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Accepted Solutions
MaryK1
Level 9

How do I allocate unearned income when reporting in two states?

The general rule of thumb for state taxes is:  you pay state tax on state source income (from working or rental property) in the state the income originated, if you do not live in that state you file as a nonresident.  You pay state income tax on all income, regardless of source to your resident state.  To avoid double taxation on income at the state level, your resident state will give a credit for any tax you paid on income in another state.

For a part year resident, you allocate the income exactly the same way, just using the dates to determine your resident/nonresident status.  You are correct, you will file as a Part Year Resident for both CO and WY (technically for CO you will initially determine Colorado taxable income as though they are full-year residents then subtract out the retirement/social security you received after you moved to WY.)  WY will include retirement/social security you received after you moved to WY and the rental/royalties, but you will receive a credit for the tax you paid to CO for the time you were a nonresident.




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5 Replies
MaryK1
Level 9

How do I allocate unearned income when reporting in two states?

The general rule of thumb for state taxes is:  you pay state tax on state source income (from working or rental property) in the state the income originated, if you do not live in that state you file as a nonresident.  You pay state income tax on all income, regardless of source to your resident state.  To avoid double taxation on income at the state level, your resident state will give a credit for any tax you paid on income in another state.

For a part year resident, you allocate the income exactly the same way, just using the dates to determine your resident/nonresident status.  You are correct, you will file as a Part Year Resident for both CO and WY (technically for CO you will initially determine Colorado taxable income as though they are full-year residents then subtract out the retirement/social security you received after you moved to WY.)  WY will include retirement/social security you received after you moved to WY and the rental/royalties, but you will receive a credit for the tax you paid to CO for the time you were a nonresident.




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StAndrew2009
Returning Member

How do I allocate unearned income when reporting in two states?

How would you handle this scenario for allocating two states with part-time residency?


Employed in Oklahoma through all of Jan-March by Oklahoma based daughter company (first W2 with OK Withholdings). 

Accepted offer to work for NY based parent company end of March, and remained in OK until 6/18 (second W2 with all NY withholdings). 


Moved into NY apartment 6/22. 

Surrendered OK license and Received new driver license and vehicle registration 9/28. 

First W2: Jan - March

Second W2: April - Dec

MarilynG1
Expert Alumni

How do I allocate unearned income when reporting in two states?

@StAndrew2009 From 1/1/20 to 6/22/20, you were an Oklahoma resident.  You will pay Oklahoma tax on income you earned while living there with a Part-Year Oklahoma return.

 

Since you were paying New York taxes from your income from April through June 22nd, you underpaid Oklahoma and will probably owe some OK state tax.

 

You will file a Part-Year Resident return to New York, for income earned from 6/22 through end of the year.  

 

Since you paid tax to NY for April, May and part of June, you overpaid New York and should get that amount refunded.

 

Click this link for info on How to File a Part Year Resident Return

 

 

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StAndrew2009
Returning Member

How do I allocate unearned income when reporting in two states?

thanks, how would you allocate this? by percentage or number of days?

MarilynG1
Expert Alumni

How do I allocate unearned income when reporting in two states?

@StAndrew2009 The State interviews in TurboTax may ask how many days you lived in each state.  If you only have one W-2, it will do the calculations for you.

 

You can adjust the amounts calculated by TurboTax. 

 

This link give more info on Allocating Income for a Part-Year Return

 

 

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