I have a client who is a California resident but owns a rental house in Indiana. She had a profit of $3,400 from the rental house and the rest of her income is SS, a small pension and a little interest, so she would not owe Calif tax even if the rental was in California. My software calculates $84 IN tax, but my client says she has rented this house out for years as a CA resident and never had to pay IN tax. I looked at her 2010 tax return, and her preparer called it all CA income because she is a resident, and I'm thinking that may be what I do as well. If she was not under the CA filing requirement and owed CA tax, she would be entitled to an Other State Tax Credit for the double-taxed income, so it seems like theoretically at least she is being double-taxed on that income. Any thoughts on this?
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My opinion is that its IN income, must file NR IN return. Prior taxes are done incorrect and suggest amending returns to pay past taxes owed.Originally posted by manyhappyreturns View Post
Chris -
Look at the Indiana return and make sure that depreciation is taken into account on that state's return.
I've run into the problem before with software would only subtract depreciation is a certain added 4562 were included.
And the reason for that was the state didn't recognize all the federal elections.ChEAr$,
Harlan Lunsford, EA n LAComment
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Non-resident return is needed
I don't quite follow the story here....Originally posted by manyhappyreturns View Post
First, she is definitely liable for any IN income tax that would be applicable on her IN rental income (more than likely via IN "non-resident" income tax form).
As a CA resident, she would also be liable for CA income tax on that additional income. She would, in theory, be able to offset any CA income tax liability by the income tax paid to IN by taking the appropriate tax credit. That eliminates the "double-tax" issue you raised. But if her CA income tax is already zero, that point is moot. (Such credits are usually along the lines of the lesser of the tax paid to state X or the total tax liability for the home state.)
I completely agree with spanel. The errors of other tax "professionals" should not impact how you properly prepare the client's return(s). As for amending any prior years, that would likely be a client decision. Client may wish to have the former preparer take care of the amended returns and/or pay any interest/penalties that may have accrued.
FEComment
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When she sells the house, IN will jump all over her for back taxes, penalties, and interest for ALL the years she owned the rental. No statute of limitations because no return was ever filed. They may even notice sooner, via property tax bills.
Give her the news now. File correctly from now on. Let your client decide what to do about prior years.Comment
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NR return
Okay, thank you everybody!Comment
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