Out of State Property Sales

[pmtiger]

My wife is part of an LLC with her sisters in NC, and we are SC residents.  The LLC sold property this year, and the NC LTCG tax was paid before the proceeds were distributed.  Do I need to complete an entire NC return, or just particular forms or schedules?  Will the state tax paid to NC be credited on my SC return?

[DavidD66 · Accepted solution]

You need to file a North Carolina non-resident tax return.  You will need to make sure that the capital gain, and any thing else reported on the K-1 is reported as North Carolina income/gain, etc.  As you go through the state return in TurboTax the program will select and include the forms that need to be included in the NC return.  You will receive a credit on your South Carolina tax return for tax paid to North Carolina.  In order for the credit to calculate correctly you should complete your North Carolina Non-Resident return before you complete your South Carolina return.   

[pmtiger]

I found that I need to file my state's 1040TC for a tax credit for the tax paid in another state.  However, it requires i send a copy of the out-of-state return showing the tax being paid.  The tax is being paid on my wife's behalf by the accounting person for LLC, not by me, and they don't use Turbotax.  We don't have a choice in this because that state requires it to be paid by LLC for out-of-state residents.  Any ideas?

[DianeW777]

It depends. If the LLC paid the North Carolina (NC) state income tax on the gain from the sale, you should not have to file a NC return again on the same capital gain.  In this case you would not have a gain to report or pay tax a second time to NC.  If what you are saying is true you should file your resident return only for South Carolina (SC) and there should be no credit.

• Your statement: 'The LLC sold property this year, and the NC LTCG tax was paid'
  • Confirm this with the person who prepared the LLC return.  
  • If the state tax was paid and applied to your wife's social security number (SSN) then her K1 would also show any state tax paid on her behalf and it would be included on your state return withholding or estimated payment.  This seems unlikely.

Please update here if you have more details or your comments are misunderstood and we can help.

@pmtiger 

[pmtiger]

Thanks Dianne for the reply.  I am an SC resident.  The person filing the taxes for the LLC happens to be my wife's sister's husband, and I can confirm that he plans to file and pay the NC state capital gain tax for my wife within the next week or two.  But if I don't file an NC return, how do I get a credit on my SC return for the tax paid, since it shows the amount of gain on line 9a of my K-1?  Also, we have a small loss of net rental real estate income (line 2) and some interest (line 5) from the LLC, so I thought the NC return would be necessary.  

[DianeW777]

Since the LLC is paying the state tax, it should be paid as an estimated tax payment to each participant in the LLC. Otherwise the tax payment will be credited to the LLC which does not allow a credit for the individual participants in the LLC.  The profit/gain should be reduced by expenses including state income tax payments made by the LLC before disbursing the actual net proceeds to the LLC participants.

Based on your information there would be no credit for taxes paid to another state at the individual income tax level. Maybe you should discuss this with the person doing the LLC return to be clear on exactly how it is being handled.

@pmtiger 

[pmtiger]

Well, a couple of problems with this.  Disbursements to all of the partners have already been made.  Also, the LLC is paying the NC tax only for my wife, not the other three partners, as NC requires the LLC to pay it for non-residents, and the others are residents.  The others will pay it themselves when they file their NC resident returns.  And there were no income tax payments to the state, since again, this only applies to my wife, and the LLC basically breaks even most years.  This year was different because the LLC sold off 4 parcels of land, which is what generated the LTCG.  

[pmtiger]

I found a work around.  If I enter the tax pain by the LLC in NC on my federal return as an estimated payment to NC, it at least gives me credit in NC.  Not sure though if it is still having me pay the tax a second time in SC.  Thanks for all of your help.