Hello

My client is resident of Indiana and has 50% interest in multimember LLC registered in MI.

The LLC sold one of  the rental properties located in MI and reported capital and 1251 gain on K-1 1065.

Which state the capital gain be taxable Michigan or Indiana? (previous years material and active  participation box was checked. 

Can this be treated as  investment income and be taxed only in IN? If not,  and if taxes are required to paid in MI, can that income be excluded in  Indiana? (Michigan allows to exclude capital gain from property sold in other state but not sure of vice-a versa)

Other state tax credit in Indian is much smaller than taxes to be paid in MI if it is considered MI income.