Katiej_1958[at]yahoo.com (Katie Jaques) wrote:

snip

- quote -

Or doesn't ask until after they have made the sales.

Drew Edmundson, CPA (NC)

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lrnich[at]juno.com (Lois Nicholson) wrote:

- quote -

In a word: Yes.

The effect depends somewhat, however, on how each state
calculates taxable income or tax liability for a nonresident
or part-year resident. Most states that have graduated
rates calculate the tax on the basis of the taxpayer's total
income from all sources, and then prorate the result by the
ratio of in-state income to total income (sometimes TI,
sometimes AGI, depending on the state). The result is that
the in-state income is taxed at the same average rate per
dollar of AGI or TI that would have applied if the taxpayer
had been a resident. The capital losses included in total
income could reduce the rate of tax due on the capital gains
included in in-state income. They still wouldn't offset,
though. (Generally the proration percentage can be more
than 100%.)

In a flat-rate state that calculation wouldn't make any
difference, because every dollar is taxed at the same rate
anyway. And you're right, the out-of-state capital loss
won't offset the in-state capital gain. So you have a net
capital gain in State A and a net capital loss, subject to
limitation, in State B.

A competent tax adviser would have suggested that the
taxpayer time either the move or the stock transactions so
as to avoid this problem. Of course, it often happens that
the client can't control the timing, for one reason or
another.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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Lois Nicholson wrote:

- quote -

Tha'ts right!

Although I can't comment on the magnitude of state A's tax
you know.

Cheer$,
Harlan Lunsford, EA n LA

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lrnich[at]juno.com (Lois Nicholson) writes:

- quote -

The gains and losses are attributable to the state of
residence at the time of the transaction. How it winds up
affecting the state returns depends on how the states handle
it. Some go strictly by what happened during residence and
others figure the full year and apply a percentage based on
the percentage of income earned while a residence.

Phil Marti
Topeka, KS

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"Lois Nicholson" <lrnich[at]juno.com> wrote:

- quote -

Possibly - depending on how the states treat the items
individually.

Gene E. Utterback, EA

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Lois Nicholson wrote:

- quote -

It depends on the states, but I think you've got the gist of
it. If "A" is AZ, then the allocation percentage cannot
exceed 100%, so your tax essentially cannot exceed what you
would pay if you were an "A" resident the entire year. If
"B" is CA, and your losses exceed $3000, you may not be able
to carry over ANY of the excess to future years.

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Lois Nicholson wrote:

- quote -

The answer there is going to depend on the state laws
involved and how they handle part year resident return
situations. So without knowing the two states involved and
then being "up to speed" on the intricacies of each state's
laws, it's going to be impossible to say.

--
Ed Zollars, CPA
Phoenix, Arizona

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Suppose a taxpayer moves to a different state sometime
during the year, and throughout the year sold various
securities. Suppose the sales that occurred when the
taxpayer lived in "state A" resulted in large capital gains
while those that occurred when the taxpayer lived in "state
B" resulted in large capital losses. For federal purposes,
the gains and losses essentially offset each other.

However, would the taxpayer owe a huge state tax bill in
state A and have a big loss (that would be difficult to
offset) in state B?

Thanks,

Lois Nicholson

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