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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 3901
Experience:  Providing Financial, Tax & Business advice since 1986
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If we sold 2 properties in MN this year and one was a capital

Resolved Question:

If we sold 2 properties in MN this year and one was a capital loss of $45,000 and other was a capital gain of $195,000 do we need to pay Q4 estimated taxes to MN? We live in OR and our other MN income would be about - $5000 on the rental property we sold. We are anticipating 15% long term capital gains on the $150,000 net capital gain.
Submitted: 9 months ago.
Category: Finance
Expert:  Lane replied 9 months ago.

Lane :

HI,

Lane :

MN has what's called a safe Harbor Rule

Lane :

Here's how it works:

Lane :

Who Must Make Estimated Tax Payments


Generally, you must make estimated tax payments if both of the following apply:



  • You expect to owe at least $500 in Minnesota income tax (not including your withholding or refundable credits); and

  • You expect your combined withholding and refundable credits to be less than either of the following:


    • 90 percent of your Minnesota tax liability for the current year; or

    • 100 percent of your Minnesota tax liability for the previous year (or 110 percent if your adjusted gross income was $150,000).



This is known as the “safe harbor rule”: If you pay at least one of these amounts in Minnesota income tax during the year, you won’t be charged interest on any tax you still owe as of Dec. 31. If your withholding and credits total less than either of the “safe harbor” amounts, you need to make estimated tax payments to cover the difference and avoid interest charges.

Lane :

Then, as it applies to non-residents:

Lane :

Part-year residents or nonresidents: The “safe harbor” rule applies as long as your Minnesota tax liability was at least $1 in the previous year. Your adjusted gross income that’s assignable to Minnesota is used to determine if you meet or exceed the $150,000 threshold.

Lane :

You'll have to pull together your 2012 numbers

Lane :

aorry ... and see where that puts you

Customer:

our income in MN has been negative for the last 5 years. Is the net monies from the sale of the property income or not? That is where I am confused

Lane :

Yes, capital gains plus sme passive income

Lane :

Do you know that the MN cap gains rate is 15% or were you talking about Federaql?

Customer:

Federal is 15%

Customer:

someone said we pay state tax in MN rather than MN capital gains

Customer:

but we are trying to figure it out so we know how much of the proceeds to set aside and whether we need to send some to MN now

Lane :

OK, actuaqllym there is a bill pending right now that will change that ... hand on just a sec ,,, just found it

Lane :

Effective for tax years beginning after December 31, 2012
EXPLANATION OF THE BILL
Current Law: For the Minnesota individual income tax, capital gains are treated the same as other
income; no exclusion or lower rate applies.
Proposed Law: The bill would allow a subtraction from taxable income equal to a 30% of the adjusted
net capital gain, as defined, to the extent that it is included in federal taxable income. For farm assets,
the percentage is equal to 60% of adjusted net capital gain. Farm assets are defined as livestock, farm
equipment, farm real property, and farm depreciable property. The subtraction would also apply in
computing alternative minimum taxable income for purposes of the alternative minimum tax.

Customer:

The "income" on the rental property has always been negative and we lose about $5000 per year - just sold it at a $45,000 capital loss but sold another MN property at $195000 capital gain

Lane :

SO this really is up in the air at this point.... I think the bill is in committee right now ... If it DOES NOT pass, then you are correct it

Lane :

' is regular state income tax

Customer:

if it does pass, what is our liability and when is it due?

Lane :

OIC I thought the 5000 was a positive number ... I see now

Lane :

Looks like it could be quite a break

Customer:

And haven't lived in MN for over 5 years - so we are confused

Lane :

right now, if nothing changes you will pay regular income tax on the net gain ... and will probably (ill have to look) get a credit on your Oregon Tax for any tax paid to another state

Customer:

OK, go ahead and look and I'll lurk around my computer doing other things

Lane :

Here are the rates as they are now in MN

Lane :

































​ RateMarried joint​ Married Separate
More ThanBut not more thanMore thanBut not more than
5.35 percent​​$0​$35,480​$0​$17,740
7.05 percent​$35,481​$140,960​$17,741​$70,480
7.85 percent​​$140,961​$250,000​$70,481​$125,000​
​9.85 percent​$250,001$125,001

 

Lane :

So you'd be looking at 7.05%

Lane :

And yes this is from Oregon Revenue

Lane :

Income taxes paid to another state ORS 316.082, 316.131



[Addition Code 104]


If you pay tax to Oregon and another state on the same item(s) of income, you have "mutually taxed income." You may be able to claim a credit on your Oregon return for income taxes paid to another state.


Customer:

How does OR tax the gain?

Customer:

so 7.05% on 140,960 of the gain and 7.85 on the residual $5000 or so since it is $150,000 net sale profit minus ~ 5,000 rental income loss

Customer:

for MN

Lane :

If it stays as it is nos ... it's all income so 145000

Lane :

as it is "now"

Lane :

See this, from the Oregonian

Lane :

Yet Oregon's tax structure, which taxes capital gains at the standard income rate, is famously unfriendly to investors and small business owners alike. For long-term capital gains, Oregon's top combined federal and state rate, 21.4 percent, is higher than every other state's except California's (21.7 percent) and Hawaii's (22.2 percent), according to a March study by the American Council for Capital Formation, a Washington, D.C.-based organization that advocates for low taxes on capital gains.

Lane :

Yes, just found it ..There is no special capital gains tax rate for Oregon, it's added to income

Customer:

So what do you think is worst case scenario for total taxes due - and NO I won't hold you to it because things change, but just trying to figure out who to pay what and when ; )

Lane :

K ... let me check one more thing to be sure that as residents that tax all income (and that is likely) IF they do, it'll be added to your other oregon income ... then you'll have a credit of the 7.05% of 145000 let me verify ....

Lane :

Yes, if you are a full year resident and you included gain from a sale on your federal tax return it carries over to the Oregon form you are filing. That gain is then


included in your Oregon income and taxed at the rate your other income is taxed at for Oregon purposes. Again no special capital gains tax rate for Oregon.

Lane :

Please don't shoot the messenger here ....

Lane :

BUT then you will pay that 7.05% on the gain tp MN and that will be a credit against oregon taxes.... net net you'll pay at the higher of the two

Lane :

so whatever adding the 145000 to your oregon takes you to (in terms of marginal tax rates) that's what you're really pauing, because you'll get everything you paid to MN back

Lane :

sorry ... it hurts to make money doesn't it?

Customer:

so 9% I think is the top tax category for OR

Lane :

there ya go

Lane :

so by brin a resident there you'll pay that additiona 1.95%

Customer:

bah humbug

Lane :

truly Laughing out loud

Lane :

you're the first this year!

Customer:

seemed fitting - glad it gave you a chuckle ; )

Customer:

Do I need to send MN the 7.05% for Q4 estimated tax?

Lane :

to add insult to injury ...

Lane :

you dont qualify for the safe harbor, so technically you're supposed to .. Don't know what their underpayment penalty is

Customer:

OK, any idea where I download the form and ship them their money?

Customer:

MN dept of revenue I assume

Lane :

Here's one thing you'll need:Underpayment of Estimated Income Tax

Lane :

Woops hang on that las one the efile one was for corporate estimated disregard

Lane :

the underpayment worksheek applies though

Lane :

still looking

Lane :

And here's the information about filing the non-resident return itself

Lane :

Nonresidents


You’re considered a nonresident of Minnesota if both of the following are true:




  • You’re a permanent resident of another state or country.



  • You spent less than 183 days in Minnesota.



If your income meets the minimum filing requirement ($9,750 for 2012), you must file a Minnesota return using Form M1, Individual Income Tax, and Schedule M1NR, Nonresident/Part-Year Residents.


For more information, see:


How Nonresident Income Is Taxed by Minnesota


Nonresidents (Income Tax Fact Sheet 3)

Lane :

Sorry, thought the links would transfer ... just another moment

Lane :

Here we go ... you'll see about halfway down the table here...








Capital gains and losses from the sale of tangible assets not used in a trade or business ​Yes, for property located in Minnesota ​
Lane :

Do you want the form itself Turbotax would be a very good way to do this ... just do the federal, then do MN and then oregon last (that will ensure you get the credit)

Customer:

OK, yeah we always do TurboTax - do you think I need the help of one of their CPAs or just go on when it is available at the end of Jan?

Lane :

I think given that you have your arms around it conceptually you should be able to handle it ... (maybe asl for help it somethings not working as you think it should) I'd just use the interview method... so it asks you all the questions ... You'll do Federal First, the add MN everything will flow to there ... go through the questions it will ask about MN ... then add Oregon ... by doing the resident state last ... you'll get the credit for the tax paid to MN

Customer:

OK, sounds good. It is a little confusing since the capital loss is on a property that was used as a rental and would therefore be considered a business? But I will ship MN 7.05 of the $145,000 we estimate gain and then see if turbotax can handle the rest

Customer:

but then again, nobody ever claimed the tax codes were simple ; )

Customer:

well, maybe somebody did - but they lied

Lane :

It's reeeediculous

Lane :

on the cap gain in MN

Lane :

a rental isn't considered a trade or business ther'll be a schedule e but they consider that simpl rental income

Customer:

no sales tax in OR, so the income tax is where they'll GET US

Lane :

ahhh, SOME relief

Lane :

yes, there is apparently some pressure to change as you sw from the article

Lane :

to a lower cap gains tax

Customer:

OK, good enough. I will set aside 15% fed cap gain and anticipate 9% OR tax and if they somehow make it more, I will just have to make payments ; (

Lane :

Well, hopefully having all the facts'll help you "see around some corners"

Lane :

Don't spend that NET money all in one place!

Lane :

If this has helped, I would appreciate a feedback rating of 3 (OK) or better (excellent, is ideal)… That's the only way I get credit for the work.


However, if you need more on this, please come back here, so you won't be charged for another question.

Customer:

I already spent the majority of the NET paying off the house in OR - Dave Ramsey Baby Step 6 - but had set aside $37,500 for taxes which sounds close

Lane :

Ramsey's good ... no-nonsence

Customer:

Thanks for all the help, absolutely you get an excellent rating

Lane :

...senSe You're very welcome

Customer:

How do I come back to this page if I think of another question?

Lane :

Bookmark (save as a favorite in your browser) .. OR you can copy this link and just paste is somewhere ... such as a word document, and it will take you right back here: http://www.justanswer.com/finance/83o6c-sold-properties-mn-year-one-capital.html and finally, you can get back to all previous questions from your home page (account page)

Customer:

thanks

Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 3901
Experience: Providing Financial, Tax & Business advice since 1986
Lane and 2 other Finance Specialists are ready to help you
Expert:  Lane replied 9 months ago.

Thanks for the rating Kristin (or Kristen's husband?)

... enjoyed working with you!

Lane

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