Capital Gains

[ruthc]

TP had capital gains from selling stock in the beginning of 2014. He moved in the middle of the year from one state to another (OR to MA). How do I decide which state he has to pay capital gains tax on? When I do the tax return the gains show on both states. My thinking is that just OR would get the tax because he sold the stock in the beginning of 2014 and that is where he lived at that time. Or would both states tax him? I entered just one state (OR) on the 1099 but both states taxed the gains. Because I prepared part time residents I don't see where I could take out the gains on the MA return. I don't have to override the OR return to take out the gains, but I can't find where to take it out on the MA return. I would really like to just pay the tax to MA and take it out for OR. It won't make much difference, but I want to do it correctly.
Thanks a lot!

[kathyc2]

I would say that since he was an OR resident when the sale took place, it is OR income.

It would be dependent on what software you use as to how you would enter it. If you happen to use Pro Series, use the PY Allow wks from the federal screen.

Not familiar w/ MA but if it is a state that give credit for tax paid to other states, even though it shows as MA income, you not really paying MA tax on it since you get a credit for OR tax for this transaction.

[FEDUKE404]

Allocate income to state

It's been my experience that most states where a part-year resident return is applicable will have a linked software worksheet where you list the various categories of federal income and then the portion, if any, of each income that was "earned" while a resident of the state. Such would apply to everything from wages to retirement income to investment income to unemployment. Once that information has been entered, it is likely you will see some adjustments to each state's "regular" personal exemption and/or standard deduction.

To answer your question, I would take the approach the gain/loss goes to the state where the individual was a resident at the time(s) of the disposition(s). It is also possible that your tax software is defaulting to start with 100% of federal income shown in each state, dependent upon your later actions to break up the pieces.

Of course, not all states follow those simple rules and create a muddy zone between FY/PY/NR calculations.

Just work through your tax software, and you should be OK.

FE