CA Home Sale Exclusion for a non-resident at the time of sale

[Turtle43]

TP is single with 2 kids. She sold a home in CA  ( 2016) while being domiciled in North Carolina. She qualified for Fed Home Sale Exclusion $250K but CA is after her for 540NR Form and for $25K prob for Cap Gain on the sale.  Does she have to pay CA Tax for the home sale?

01/11/2013 Home Purchased in CA

04/01/2015 Put Home into Rental, TP moved to NC (lived in home 26 months)

04/30/2016 Took Back home to get ready to sell (did not live in home)

05/25/2016 Sold Home (owned home 40 months)

She qualified for the Fed Home Sale Exclusion $250K and had to pay tax on less than $10K extra Cap Gain in Fed. 

There was no CA FTB withholding in HUD-1 shown, which I thought was odd.

Questions:

(1) If she were to be a resident of CA, she would have qualified for CA Home Sale Exclusion other than over $250K gain due to CA conformity?

(2) Since she is a resident of NC, she does not have the privilege to enjoy the CA Conformity of Home Sale Exclusion, therefore, owe tax on the home sale?

(3) If taxable in CA, she would have to pay tax on the entire Cap Gain and not only the depreciation recapture?

Thank you. Could not find a situation during research on Non-resident + Home Sale Exclusion Conformity in CA.

[George4Tacks · Accepted solution]

No withholding for CA was probably the result of the invoking IRC 121 on the FTB 593 form.

A piece of CA real estate was sold, so a 540NR should have been filed. Failure to do so tends to make CA rather upset and file what the "think" the taxpayer owes in the form of a Notice of Proposed Assessment (NPA.) It is seldom a correct figure and as the name implies it is a "proposed" figure. FILE THE 540NR

1) IRC 121 only (assuming qualified)

2) Residency of NC has nothing to do with it. The real estate was CA. The depreciation was CA. CA wants a tax return. Any capital gain is CA capital gain. Any depreciation recapture is CA depreciation recapture. 

3) 540NR is a really neat tool to figure out what percentage of the income is CA source and how to allocate the tax based upon that. Do the 540NR and see what happens.

[Marc-TaxMan]

Please clarify George:  Does taxpayer qualify for Home Sale Exclusion?  I THINK yes

[Just-Lisa-Now-]

Looks like it.  Owned the house for 40 months and lived in it for 26 of those.

[George4Tacks]

See page 10 https://www.ftb.ca.gov/forms/2017/17_1001.pdf
CA conforms to federal, so given your facts - YES

[Turtle43]

George4Tacks: Thank you for your answer. It makes a lot of sense what you said. Yes, I have read Page 10 of CA Pub 1001 and I have also done 540NR in the past.  This was client self-prepared Turbo Tax Returns. I hope she can get me the .tax file so I can upload to Proseries. I would rather not have to charge her for my time to recreate the 2017 Fed Return.  

[Turtle43]

Funny story: TP temporarily moved out of country with 2 kids within a year after selling CA home . FTB's notices went to her NC home and when she first got the notices that her fren opened her mail to sent to her, she thought it was a scam because the sender of letter from FTB had a Nigerian name! TP disregarded the FTB notices and until the notice became collection and she realized it is serious. Then she remembered to call me to help her.

[Just-Lisa-Now-]

Funny!   at least they were being cautious!

[Just-Lisa-Now-]

Funny!   at least they were being cautious!

[mlk7205]

Good discussion.

I have a similar experience and intend to file the CA 540NR. My problem is that I owned the home for 35 years with massive appreciation in value (~$4.5m over the original purchase cost). The Sale price and CA withholding doc shows the correct sale price just under $5m. My records as to improvements and thus the cost basis are very weak, partially due to a divorce 10+ years back where my Ex cleared out with some files. I'm wondering about my audit exposure and have some information that indicates that the FTB is very aggressive. What am I in for?? 

[joshuabarksatlcs]

My problem is that I owned the home for 35 years with massive appreciation in value (~$4.5m over the original purchase cost).

Why would that be a problem?  You've enjoyed the Cali-sunshine for 35 years and the gravy train of appreciation.  If you're now retired, you'd have a great financial safety net that's envied by many.  I'm sorry, but I really don't see the problem.

[qbteachmt]

"I'm sorry, but I really don't see the problem."

Paying taxes on an ungodly gain just seems so sad...

@mlk7205 

This is not a "good discussion" but a Discussion among users of ProSeries software for help preparing their clients' tax returns.

Are you using this program? If not...

You seem to be lost on the internet.

You’ve come to a Peer User community for Intuit Income Tax Preparation products supporting tax preparation professionals using ProSeries, Proconnect and Lacerte Tax Preparation programs, and you may be looking for support as an individual taxpayer using TurboTax. Please visit the TurboTax Help site for support.

Your sign in user info here is the same one you can use over at the TurboTax forum.

Thanks.

[mlk7205]

Paying taxes isn't a problem. From above:

"I'm wondering about my audit exposure and have some information that indicates that the FTB is very aggressive. What am I in for??"

[qbteachmt]

@mlk7205 

Let me try this, again. If you are using ProSeries for preparing your clients' income taxes, this is the internet community for you and your peer users, because what is discussed is not Paying Taxes or Audit. It's how to Use The Program(s) to do what is needed for the Client's tax return. This specific topic relates to a Non-resident CA real estate sale.

If you simply want to discuss taxes, audit risk, how does my personal scenario apply to X, Y and Z, that is why Intuit has a similar community at the Turbo Tax forums. They have subforums for various categories.

This Community has none of these subforums; not to discuss Audit nor to discuss your Risk, and not to work on anyone's personal issues. I politely redirect you to the TurboTax forum, for that reason.

It's as if you walked into a Cowboy Bar and insist someone help you with your Ballet lessons. Not the Right Place.

As I also noted, you made a username here, that will also work for the TurboTax discussion community. Just go to that link I provided earlier, and log in.

Try this portal to the same forums, as a different view:

https://ttlc.intuit.com/community/discussions/discussion/03/302