wrong taxation for on residents of MA with respect to capital gains

Forum|Forum|1 year ago
April 7, 2025
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I am a Florida resident filing a Massachusetts Form 1-NR/PY as a nonresident. TurboTax incorrectly calculated state tax on my capital gains, even though the gains are not Massachusetts-sourced. I correctly allocated $0 MA-source income in the nonresident worksheet, but Line 28 on Form 1-NR/PY still calculated capital gains tax. This violates MA DOR sourcing rules. The only fix was manual override or filing outside TurboTax. Please review your state apportionment logic for MA nonresident returns.

MAK70

The Massachusetts taxable income of a part year individual is calculated as if all income were earned in Massachusetts. The Federal Adjusted Gross Income (AGI) will be adjusted using the Massachusetts adjustments to arrive at AGI from all sources. The AGI from all sources is used to determine the taxable income. After the taxable income is calculated, it is prorated using a percentage of the AGI from Massachusetts sources divided by the AGI from all sources. This prorated tax is the Massachusetts tax.

philippebrakAuthor

Thanks for your input — you’re absolutely right that Massachusetts calculates a tentative tax on all income and then prorates it using the MA-sourced income divided by federal AGI, via Schedule R/NR.

However, in my case, that proration ratio is 0 ÷ $343,415, because I’m a Florida resident, never physically worked in Massachusetts, and all my income is sourced outside MA — including capital gains, which were entirely from investments with no MA nexus. As a result, my MA taxable income is zero, and my final tax due is also zero, as confirmed by the MA DOR guidance on nonresident returns.

This aligns with MA Form 1-NR/PY instructions (p. 24) which state:

“If you did not have any Massachusetts income, your Massachusetts taxable income will be zero, and no tax is due. If Massachusetts tax was withheld, you should file to claim a refund.”

I appreciate your engagement — these nonresident sourcing rules are tricky even when the software gets them wrong (as TurboTax initially did in my case).