I am a CO resident w/ an IN nonresident K-1 that has Box 5 Int income (IN Sourced income). The IN Box 5 flows through to interest on my CO return. How to adjust CO?

[skiaspen2018]

 Should I adjust the IN sourced K-1 interest via the CO section K-1 decreases of income section or some other way?

[DianeW777]

No, do not adjust the Colorado (CO) tax return.  CO residents must report all worldwide income on their state return and will give you a credit for tax paid to Indiana (IN).  

It appears you have completed both returns, however if you did do the IN return first, TurboTax will carry the credit over to your CO tax return.  If you did the CO return first, make sure to write down the tax (not refund or balance due) from the IN return.  When you are in the CO tax return, watch for the 'Credit for taxes paid to another state or Other state tax credit'.  Make your entry for income and tax included on the IN return.  This will produce the credit below.

The credit for tax paid to another state on the same income will be the lesser of:

1. the tax liability actually charged by the nonresident state, OR
2. the tax liability that would have been charged by your resident state

[skiaspen2018]

Thank you so much!  Very clear. May I ask you one more please? The IN investment is passive to me.  The IN K-1 includes the respective interest income and the total other passive losses for a combined Adjusted Gross Loss in IN.  In completing IN in Turbo Tax, as a CO resident, I am asked whether I have allocable Federal level interest to IN. If I exclude the respective Box 5 interest to IN I have $0 tax liability (which conceptually aligns to the IN K-1 that indicates an Adjusted Gross Loss).  However, I am paying federal tax on that Box 5 IN interest income, so should I be including it on the "allocation/apportionment" section? If I include it in that section, I have a small tax liability.  Thank you again!!

[DianeW777]

It depends. If you are saying you have interest for IN and you have a loss entry on your K1 for IN then you should be able to enter both numbers to net the overall loss, if IN allows that.  If the loss figure is not an entry point then the interest would likely be taxable to IN.

@skiaspen2018