Can California resident who has a rental home in Arizona use FORM 309 and 301 to get credit for tax paid to AZ?

[singh]

My client is CA resident and owns a rental home in Arizona. He has to pay double tax, one to CA and other to AZ. Is he allowed to use Form 309 ( Credit for Taxes paid to Another State) ?

I am confused regarding this credit because IRS allowes tax paid in another State to be claimed on Form 1040.

I tried to fill the 309 form and it gives the Credit to a certain extent.

Thank you in advance for any help.

[Just-Lisa-Now- · Accepted solution]

AZ gives the credit on the non resident return for taxes paid to CA. (AZ and CA are one of those exceptions, generally the resident state gives credit for taxes paid in the non resident state, but AZ and CA are vice versa).  

Im not sure what you mean by the IRS giving credit for taxes paid to another state on the 1040...there is no "other state" on a 1040.  You can use taxes paid to any state as a deduction on the 1040 Sch A, but there is no "other state credit" on a 1040.

"I tried to fill the 309 form and it gives the Credit to a certain extent."

Right it will only give credit for the amount of double tax that was generated, it may not wipe the tax due to AZ out completely.

[George4Tacks · Accepted solution]

Yes, use the AZ 309 (and the tag along 301). If you check the figures you should get a credit for the smaller of the AZ or CA tax on the income for the rental property, as a credit against the total AZ tax. This then eliminates the double tax and leaves the client paying the higher of the two state taxes, but not both. 

As with a regular return, you can claim any taxes PAID during the year to any state on the 1040 Schedule A. You will also get the privilege of claiming any refund you receive the next year, up to the benefit derived. 

[singh]

Thank you George4 for your help. I really appreciate your detailed explnation.

[singh]

Thank you so much for your help.