Filing Taxes for Individuals Living, Working or Investing in Multiple States
Guardians and Powers of Attorney for individuals living or investing in multiple states, must make sure to file the individual’s income tax returns in the non-resident states. Executors must file the decedent’s final Form 1040 as well as tax returns for all prior years that were not yet filed. Make sure to file in any state in which the decedent lived, worked or invested. Fiduciaries should review the tax saving opportunities and/or issues in the non-resident states. Here are some classic examples.
NY Filers Taxpayers who live, work or have real-estate in NY must file a NY resident or non-resident return. They may benefit from itemizing deductions for NY even if they can’t itemize for the IRS. The NY threshold to itemize is substantially lower than the federal threshold, making it easier to itemize for NY. The US standard deduction in 2021 for married filing joint was $25,100 and $27,800 for married seniors. In contrast, the 2021 NY standard deduction for married couples and married seniors was only $16,050.
Additionally, several deductions are allowed on the NY return which are disallowed or limited on the federal return. Your steep NJ real estate taxes are limited to a $10,000 deduction on the US return but are not limited on the NY return! A deduction up to $10,000 is allowed for college tuition for each eligible student.
These deductions are allowed for NY subject to 2% of your federal adjusted gross income:
- Unreimbursed employee expenses
- Tax preparation fees
- Investment/brokerage fees
Real estate in other states? Have a loss from real estate in other states? There are several reasons why one should file a non-resident return even when there is a loss in that state.
- The non-resident state may require that a return be filed based on gross receipts of the real estate investments, even when there is a net loss.
- The non-resident state may allow loss carryforwards. These losses will offset future rental income from the property. Upon the sale of the property, the losses will reduce the capital gain.
Credit on the resident return for taxes paid to other states Frequently overlooked!
- Make sure that sources of income/loss are correctly grouped on the resident return which may differ greatly from the IRS. This determines the credit for taxes paid to other states.
- The credit on the resident return for other jurisdictions should also include taxes paid to other cities, such as Philadelphia.
When filing in non-resident states, review the tax saving options which could be substantial. Your Google search isn’t a substitute for our years of experience with multi-state tax returns. Contact one of our tax professionals for guidance at (732) 777-1158 or firstname.lastname@example.org.