Capital Gains from Property Sold Out of State

Forum|Forum|1 year ago
October 30, 2024
4 replies
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I sold real estate in another state in 2024 and thus have a capital gain to report. I understand that I won’t owe a capital gain tax if my adjusted gross income is less than $94,500. However, it appears my income will be slightly above that amount. How do I determine how much additional withholding I must do to avoid a penalty? I think I need to make a payment to my home state of California as well. The property was sold in Hawaii, and that state has already withheld 7.25% from the property sale.

marctu

Just to clarify the profits from the sale of an asset held for more than a year are subject to long-term capital gains tax. The rates are 0%, 15% or 20%, depending on taxable income, and filing status. So you need to focus on taxable income and not adjusted gross income. These are the rates.

Tax rate	Single	Married filing jointly	Married filing separately	Head of household
0%	$0 to $47,025	$0 to $94,050	$0 to $47,025	$0 to $63,000
15%	$47,026 to $518,900	$94,051 to $583,750	$47,026 to $291,850	$63,001 to $551,350
20%	$518,901 or more	$583,751 or more	$291,851 or more	$551,351 or more

Since you said you were going to be higher then the $94,050, I am not sure by how much, so net investment tax could apply as well. The net investment income tax (NIIT) is a 3.8% tax that kicks in if you have investment income and your income exceeds $200,000 for single filers, $250,000 for those married filing jointly or $125,000 for those married filing separately.

Your resident state California, will offer a credit for the taxes paid to Hawaii, on the California tax return that you file, so you may not owe California for this sale. The credit will not be the withholding tax on the sale, but the taxes you pay to Hawaii when you file both a California and Hawaii tax return in 2024.

I would suggest using Tax Caster to see what your tax position is with the sale of the house in Hawaii, prior to the last estimated tax payment for the year, which is January 15, 2025. Also you can adjust your W-4s, though there are only a few pay periods left in the year.

Thank you for your question @RaydeeohMan

All the best,

Marc T.

TurboTax Live Tax Expert

27 Years of Experience Helping Clients

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RaydeeohManAuthor

Thanks, Marc, that is good information. Here is a follow up question. The property was given to my wife by her father many years ago, and so our basis is zero. We sold it for $680,000. I know I can deduct the sales commission, etc, but I am wondering if we can deduct maintenance expenses for the property. It was vacant land that we had to clear of trees and brush. We made 2 trips to Hawaii in 2024 to maintain that land and are wondering if our travel expenses can be used to offset our capital gain. Can we deduct the flight and hotel costs, and costs for equipment to do that work? We also hired a company to help us clear the land and would like to write off that expense as well.

marctu

So correct me if I am wrong, but from everything I am read below this is clearly a personal property, and is also land only.

So maintenance by definition doe not improve the property, it just maintains it. The flights and hotels are also personal expenses. You can also not include the value of your time and your labor. That leaves the question of was the equipment that you may have rented plus the company that you paid to clear the land increase the basis.

I would have probably advised you if you asked before hand to sell the vacant property as is, since just simply clearing land is not a depreciable improvement since it is not subject to wear and tear. If there was a road or something else put in that was subject to wear and tear, a better argument could be made that this was an increase to basis.

Not the most satisfying follow up response, but hopefully that is helpful @RaydeeohMan

All the best,

Marc T.

TurboTax Live Tax Expert

27 Years of Experience Helping Clients

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carolineb

You are correct in assuming that you will not owe capital gains tax if you are married filing jointly with an AGI of $94050, but if your AGI is slightly higher than that amount you will owe 15% capital gains tax on the amount of gain on the sale on your federal return. Be sure to include the amount of gain when calculating your AGI, as this is a common mistake when determining your capital gains tax rate.

Since the property was sold in Hawaii, and you have already withheld the required 7.25% capital gains rate for that state, you should be fine when reporting the sale on a non-resident HI return. However, since you are a resident of California, CA will want you to pay tax on the income as well. When preparing your resident CA return, be sure to take the Other State Tax Credit for the amount of taxes that you paid to HI on your CA return. This credit will ensure that you are not being taxed twice on the same amount of income.

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Sym1

Hi! I have a similar question…I’m a California resident and sold a 2nd home in Hawaii with a profit about $300k. I also had stock losses of approximately $100k. Can this be used to offset the gain with the property in Hawaii? i filed on TurboTax using Hawaii state for 2nd state filing and it did take the loss to offset the gain but Hawaii is telling me I did not source the losses in Hawaii so I can’t use it. They are still holding my money from Harpta. So I now may need to amend it. I’m surprise if TurboTax would be wrong!

AmyC

Employee

No. Your HI tax return is based on your HI income. When you are going through the program, you allocate which income belongs to HI. HI has figured out that your stock losses are not part of your HI income. You may not need to amend - if they correct the issue.

On the other hand, states compare returns. You may need to amend your CA return once HI is settled. A larger tax bill to HI could mean a CA refund for you. Your resident state of CA will allow a tax credit for the double taxed income from HI. The credit will be the lower of the state tax liabilities on the same taxable income. You may owe your resident state, if they have a higher tax rate along with differences in how the taxable income is calculated.

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Sym1

Thanks so much! I didn’t think about amending the CA taxes also which makes sense. I think I’ll need to have a tax person help me on this as TurboTax did not separate my capital losses when it filed my HI tax return. I expected it was going to be an easy filing since it always has been. Thanks again!

cayupe1

I also sold a property in HI in 2024 and have capital gains for Fed but had to pay Hawaii the tax. Since CA will recognize my tax payment to HI how do I remove that from my state filing since my fed is showing the gain and CA is also now showing I owe.
THanks

MonikaK1

Are you a California resident? If so, prepare a Hawaii nonresident return first. Note the amount of the tax (not the refund or amount due with the return) on the Hawaii return.

Then, prepare your California resident return. You may qualify for a credit for taxes paid to Hawaii. The California interview in TurboTax provides entries for this.

See the Instructions for California Schedule S for more information.

Please also see this TurboTax tips article for more information on filing returns with multiple states.

@cayupe1

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