Selling a Home Out of State

Forum|Forum|2 years ago
March 14, 2024
1 reply
0 views

This might be a tricky question. My domicile is in Nevada where there is no state income tax. I sold my home in California and fully understand that I need to pay CA state income tax on the proceeds. The problem that I'm running into is that most tax software wants to create the state return using information from the IRS 1040. This might not seem like a big deal but what happens is that the CA state return contains AGI that includes income (quite a lot) that was not realized in CA AND then the state income tax is computed on this huge AGI where it should really just be the proceeds from the home. I suggested to one tax preparer to create a 1040 that ONLY contains the proceeds from the home and then a state return will be based on THAT AGI. Now of course this is not a valid 1040. Any thoughts?

DawnC

Employee

Any gains on the sale of the house in CA is CA-sourced income. The CA return should start with federal AGI. Did you live in CA at all in 2023? If so, you need to complete a Part-Year resident return for CA. If you did not live in CA at all in 2023, you need to prepare a Non-resident return for CA. Instructions for each are linked.

California Filing Requirements

Part-year residents. Taxpayers must file if total taxable California income (income from all sources while a California resident and California-source income while a nonresident) is more than the amount in either chart for filing status, above.

Nonresidents. Taxpayers must file if they have any California source income and income from all sources is more than the amount in either chart for filing status, above.

When you go through the state return, you will be able to allocate or specify what income is California sourced. Any gains on the sale of the house in CA is CA sourced income. Rest assured, TurboTax can prepare your state return, correctly, no matter what your residency status is.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

freddytaxAuthor

But why would the AGI for CA include income NOT sourced in CA? This elevates my CA AGI considerably and increases the tax rate from .0636 (home proceeds only) to .0821 (all income included). This adds $7,000 in taxes. In other words, why does CA get to use a higher tax rate based on income that was not earned in their state?