In which state do you pay taxes for money made on house sale?
I live in NJ but work in NY, so I file NY and NJ state returns.
I also sold a house in MD. Since that house was rented for a year when I did not live there, I need to pay taxes on a portion of the capital gain I made reselling it.
My understanding is that since the house was in MD, though I did not live in MD and had no income there, I need to pay state taxes on the percentage of the capital gain that is federally taxable (instead of adding it to my NJ income).
Am I correct? Do I have also to file MD taxes?
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Go through the process of determining if the gain is taxable on the federal forms. Even if there is no gain, there is likely to be a recapturing of the depreciation from the time the property was a rental property.
Then see if those lines/schedules transfer to the Maryland forms. I suspect they do. If so, you will have to file a final tax form in Maryland. The state of Maryland wants their portion because it is Maryland sourced income. They don't want that money to go to NY or NJ.
Be aware that if you lived in the house for 2 of the last 5 years, you may deduct 0,000 on your capital gains (0,000 if married and you both lived there).
If you have claimed depreciation on this property in the last five years, that will be treated as income, which will mean paying both New Jersey and Maryland income tax. You should be able to deduct all Maryland income tax paid from your New Jersey income tax.
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