Opportunity Zone and State allocations

[willatbird]

Client is a resident in CA but has income from real estate in Utah. He deferred some gain into an Opportunity Zone in 2021. Software seems to be getting the numbers right, but something is bothering me. On the TC 40 it's not adding back the deferred gain to the Federal Adjusted Gross Income. I think this means that he's being taxed on a higher percentage of his income in Utah than he should be (TC 40B state allocation). Should I be manually adding an adjustment to income on the TC 40? And if so, I don't see a way to do that without causing the total Utah income to double count the gain.

If you've read this far, thanks.

[Strongsilence-CPA]

"not adding back the deferred gain to the Federal Adjusted Gross Income."  I don't know much but since it is deferred, wouldn't it be correct to NOT add it back?

A client this morning told me about his 1031 in 2021 and subsequent reinvestment into Opportunity Zones. So now I need to learn what is needed to report OZ income and expenses.

[willatbird]

This only has to do with the non-resident Utah return and the calculation of the percentage allocation of Utah income compared with total income. I think I have to give up and assume that Lacerte is calculating it correctly. But it hurts my brain.

[Strongsilence-CPA]

Yes, understand.  NR and PY NR hurts mine too.  I'm almost done with a CA Part Year-NR and feel numb in my mind after reconciling the amounts on the return.

Deferred gain is not recognized yet so I don't know why it would be included in total federal income.

[willatbird]

I would expect the total income in Utah to be calculated as if he were a Utah resident (and so include the gain). Pretty sure that's the way it would work if he were a Utah resident allocating income to California instead.