reporting LLC income/losses for nonresident state

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w5000
Posts: 302
Joined: Mon Feb 10, 2020 8:33 pm

reporting LLC income/losses for nonresident state

Post by w5000 »

Can someone explain how partnership (LLC) income and losses are reported to nonresident states?

Here's my situation, somewhat simplified to focus on my point of confusion:
  • I do not live in Vermont, and had no income from VT except...
  • I am a limited partner in a Vermont-based LLC which reported K-1 income of $1,500.
  • This Vermont-based LLC reported losses for many years previously. After 2020 I have $10,000 of unallowed losses for this LLC.
  • I am a limited partner in a LLC in yet another (nonresident) state which had $500 of income.
  • On my federal taxes, my total income from partnerships is $0 because I can use $2,000 of my previously unallowed losses from the Vermont LLC to offset the $1,500 [VT] and $500 [other state] of income in 2021.
My question is about filing nonresident taxes for Vermont. First of all, I think I have to file, because I have VT income that is greater than the $1,000 threshold requiring a nonresident to file. (FWIW, this would be my first year filing VT taxes.)

The way nonresident income tax works for VT is that you calculate the tax on all your income as though you were a full year Vermont resident. Then you take the percentage of your income that was actually VT income, and that's the percentage of the full year resident income tax that you owe to Vermont.

So what is my Vermont income? Presumably it is not $1,500 because I should be able to utilize the prior year losses from this LLC.

Seems like my VT income should be $0.

The relevant form (schedule IN-113) asks for the federal amount for partnership income and what the VT portion is. One way to look at this is multiplying the federal amount of $0 by any fraction (for the VT portion) is still $0.

Another way to look at it is that the federal net $0 income is composed of $1,500 - $2,000 = -$500 from the Vermont LLC and $500 from the other state LLC. But I don't think I would get to claim negative VT income.

This is why I'm confused -- passive income and losses mix together at the federal level, but it's not clear how to separate this for each state. Does this mean that I should track unallowed losses separately for each LLC for purposes of these state income tax returns? That seems like the "right" way to do it, but I haven't seen any instructions along these lines, and it also means my unallowed losses for each LLC would differ from what's on my federal income tax return.

thanks!
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