Sold out-of-state rental property - How to calculate state taxes?

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knightrider
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Sold out-of-state rental property - How to calculate state taxes?

Post by knightrider » Fri Jan 11, 2019 3:33 pm

If I understand correctly I need to pay the tax in the state the property is located. In my example, the rental was in Illinois with 4.95% tax rate. But we live in NY with a state tax rate of 6.6%. So will we owe 4.95% to Illinois and the difference of 6.6 of 4.95 ( 1.65% ) to NY?

I believe when we do our NY return we can put a credit on there for the IL tax paid.. But I am not clear if they will still tax us for the remaining 1.65%?

MarkNYC
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Re: Sold out-of-state rental property - How to calculate state taxes?

Post by MarkNYC » Fri Jan 11, 2019 9:32 pm

Without knowing the specifics of your personal tax return, the general answer to your question is yes, you will owe NY the difference.

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grabiner
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Re: Sold out-of-state rental property - How to calculate state taxes?

Post by grabiner » Fri Jan 11, 2019 10:48 pm

See the IT-112-R-I Instructions; this is the form on which you claim credit. You compute NY tax on all your income, then take a credit which is the lower of the tax paid to the other state, or a prorated share of your NY tax. For example, if you earned half your income out of state, the credit can be up to half your NY tax.

Since NY tax is higher than IL tax, you will probably get a credit for your full IL tax, so you will pay the same total tax as if you only owed tax to NY.
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Buford T Justice
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Re: Sold out-of-state rental property - How to calculate state taxes?

Post by Buford T Justice » Sat Jan 12, 2019 9:56 am

Also check your real estate settlement statement from the closing for any state tax withheld. Some states require backup withholding when the seller is not a resident.

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