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CA Home Sale Exclusion for a non-resident at the time of sale

Turtle43
Level 3

TP is single with 2 kids. She sold a home in CA  ( 2016) while being domiciled in North Carolina. She qualified for Fed Home Sale Exclusion $250K but CA is after her for 540NR Form and for $25K prob for Cap Gain on the sale.  Does she have to pay CA Tax for the home sale?

01/11/2013 Home Purchased in CA

04/01/2015 Put Home into Rental, TP moved to NC (lived in home 26 months)

04/30/2016 Took Back home to get ready to sell (did not live in home)

05/25/2016 Sold Home (owned home 40 months)

She qualified for the Fed Home Sale Exclusion $250K and had to pay tax on less than $10K extra Cap Gain in Fed. 

There was no CA FTB withholding in HUD-1 shown, which I thought was odd.

Questions:

(1) If she were to be a resident of CA, she would have qualified for CA Home Sale Exclusion other than over $250K gain due to CA conformity?

(2) Since she is a resident of NC, she does not have the privilege to enjoy the CA Conformity of Home Sale Exclusion, therefore, owe tax on the home sale?

(3) If taxable in CA, she would have to pay tax on the entire Cap Gain and not only the depreciation recapture?

Thank you. Could not find a situation during research on Non-resident + Home Sale Exclusion Conformity in CA.

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George4Tacks
Level 15

No withholding for CA was probably the result of the invoking IRC 121 on the FTB 593 form.

A piece of CA real estate was sold, so a 540NR should have been filed. Failure to do so tends to make CA rather upset and file what the "think" the taxpayer owes in the form of a Notice of Proposed Assessment (NPA.) It is seldom a correct figure and as the name implies it is a "proposed" figure. FILE THE 540NR

1) IRC 121 only (assuming qualified)

2) Residency of NC has nothing to do with it. The real estate was CA. The depreciation was CA. CA wants a tax return. Any capital gain is CA capital gain. Any depreciation recapture is CA depreciation recapture. 

3) 540NR is a really neat tool to figure out what percentage of the income is CA source and how to allocate the tax based upon that. Do the 540NR and see what happens.



ex-AllStar

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8 Replies 8
George4Tacks
Level 15

No withholding for CA was probably the result of the invoking IRC 121 on the FTB 593 form.

A piece of CA real estate was sold, so a 540NR should have been filed. Failure to do so tends to make CA rather upset and file what the "think" the taxpayer owes in the form of a Notice of Proposed Assessment (NPA.) It is seldom a correct figure and as the name implies it is a "proposed" figure. FILE THE 540NR

1) IRC 121 only (assuming qualified)

2) Residency of NC has nothing to do with it. The real estate was CA. The depreciation was CA. CA wants a tax return. Any capital gain is CA capital gain. Any depreciation recapture is CA depreciation recapture. 

3) 540NR is a really neat tool to figure out what percentage of the income is CA source and how to allocate the tax based upon that. Do the 540NR and see what happens.



ex-AllStar

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Marc-TaxMan
Level 8
Please clarify George:  Does taxpayer qualify for Home Sale Exclusion?  I THINK yes
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Just-Lisa-Now-
Level 15
Level 15
Looks like it.  Owned the house for 40 months and lived in it for 26 of those.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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George4Tacks
Level 15
See page 10 https://www.ftb.ca.gov/forms/2017/17_1001.pdf
CA conforms to federal, so given your facts - YES

ex-AllStar
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Turtle43
Level 3
George4Tacks: Thank you for your answer. It makes a lot of sense what you said. Yes, I have read Page 10 of CA Pub 1001 and I have also done 540NR in the past.  This was client self-prepared Turbo Tax Returns. I hope she can get me the .tax file so I can upload to Proseries. I would rather not have to charge her for my time to recreate the 2017 Fed Return.  
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Turtle43
Level 3
Funny story: TP temporarily moved out of country with 2 kids within a year after selling CA home . FTB's notices went to her NC home and when she first got the notices that her fren opened her mail to sent to her, she thought it was a scam because the sender of letter from FTB had a Nigerian name! TP disregarded the FTB notices and until the notice became collection and she realized it is serious. Then she remembered to call me to help her.
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Just-Lisa-Now-
Level 15
Level 15
Funny!   at least they were being cautious!

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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Just-Lisa-Now-
Level 15
Level 15
Funny!   at least they were being cautious!

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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