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Why are Capital Gains Appearing on Nonresident California Return?

msindc1
Level 4

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

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7 Comments 7
abctax55
Level 15

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.

HumanKind... Be Both
msindc1
Level 4

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.

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abctax55
Level 15

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

 

HumanKind... Be Both
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msindc1
Level 4

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

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PhoebeRoberts
Level 11
Level 11

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
Level 4

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

 

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PhoebeRoberts
Level 11
Level 11

"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.