Why are Capital Gains Appearing on Nonresident California Return?

[msindc1]

Folks:

Client is (and has always been) a nonresident of California.  He has to file a California return because he has California-source income.  But capital gains from sales of stocks are non-resident.  How do I tell Lacerte to stop transferring those transactions to California.  In Screen 17.1 I have the state set to the taxpayer's actual state of residence.

Micah

[abctax55]

Code the sale as US (or whatever the resident state is) instead of 'CA'. 

There's a box at the top (right side) to source the entire screen to the appropriate state (or US if your client is in a non-tax state) or you can do it entry/line by line using the the drop down box by the sale price & cost.

If you speak 'batch' entry (Ctrl W) you can change the assignment to the correct state there; that's much quicker if there are multiple entries.

[msindc1]

Thank you.  Unfortunately, though, those transactions are already coded to the resident state.

I tried coding it to US and that did not change the numbers reported on the California return!  Nor does changing Source to N or S.  In fact, even changing state to resident and source to S doesn't change the CA amounts.

I also entered -1 / CA in "State, if different", without change.

[abctax55]

Are you referring to presentation on the California Sch CA-NR?

[msindc1]

Yes, though it also finds its way to the 540NR.

[PhoebeRoberts]

Way at the bottom of each Sch D input item, in the Overrides section, there's a field called "State, if different" "Total gain(loss) [O]."

Put a -1 coded to CA in every single transaction.

[msindc1]

Phoebe:

Thanks (as always) for your response.

I spent two hours with Lacerte support yesterday. I believe that they understood that capital gains from equities investments are taxed in the taxpayer's home state and not in a foreign state, and therefore that California should not be taxing income from 1099s issued by Vanguard, etc., for a nonresident.  But that's what the software is doing.  Despite that, they insisted that there was nothing wrong with the software!  It was very frustrating!

The rep told me to enter an override in the state adjustments screen, which did in one entry what you are proposing for each entry.  Your solution is probably better because it is easier to trace.  But either is wrong because the income shouldn't be appearing on the California return at all!  Sigh.

Micah

[PhoebeRoberts]

"The rep told me to enter an override in the state adjustments screen, which did in one entry what you are proposing for each entry." 😲 That's going to save me a bunch of time on my stupid nonresident Arkansas partnership next year, thank you!

Yeah, I agree, substandard presentation.