Re. VA Resident with MD Tax Credit

[Ayhn]

Hello Professionals,

I have a client who is a full year VA resident and received a 1065 K-1. Federal K-1 is at loss, MD K-1 had a big addition, so that MD state is showing taxable income. In other words, a full year VA resident had MD income which all came from a MD K-1 addition item.

To my understanding, because VA resident return started from Fed AGI and then adjust for VA items, so the MD income in this case is NOT taxed by VA? In ProConnect, the VA tax return is still showing a tax credit for MD taxes paid, does it make sense? If VA is not taxing on this portion of income, should the MD tax credit be manually removed? 

Thank you!

[George4Tacks]

"MD state is showing taxable income" so what percentage is that income to the VA income? Not just from the K-1. The K-1 would logically have a huge VA loss, but who cares. e.g. $10,000 MD income compared to total $100,000 of VA income would mean you get 10% of the VA tax allocated against the MD income. 

Look at VA form OSC and see if it makes sense.

[workhard2022]

Happy Friday!

I’m working on a case similar to one I’ve seen before: the taxpayer is a Virginia resident but received a Maryland Schedule K-1. The MD source income is entirely from the K-1. On the MD return, Line 1 (Member's Income) shows a negative $30K, but there's an addition adjustment of $38K, resulting in $8K of MD taxable income.

My question relates to the VA Form 760CG:
The Out-of-State Credit (OSC) appears to apply correctly, but I’m unsure how to confirm whether the $8K of MD taxable income has been included in the VA taxable income, potentially resulting in double taxation.

Specifically:
Which line on the VA Form 760 would show whether that $8K is being taxed again by Virginia? 

[sjrcpa]

None

[workhard2022]

Thanks, I didn't see any MD taxable income clue on VA form 760 as well