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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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We are WA residents. We inherited estate money in CA from our

Resolved Question:

We are WA residents. We inherited estate money in CA from our parents estate. We are retired(dec 2009) and had a short sale home in CA in April 2010.
Questions:
1) do we have to file a CA return for the short sale? if yes, partial year resident return?
2) do we have to claim the inheritance on our WA return since money was received from CA?
3) WA does not file state tax returns? If we have to claim the inheritance money on our WA return, how do we do that?
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

LEV :

 


1) If you are WA residents and who owned and sold a property in CA - you would report that sale on CA tax return. As you are not CA residents - you will file CA tax return as non-residents. Here is the form to use - http://www.ftb.ca.gov/forms/2010/10_540nrlong.pdf .
2) Inheritance is not a taxable income and should not be reported on your income tax return. However income earned by the estate after your parents died and distributed to you might be your taxable income. Assuming your parents were not residents of WA and did not own any property in WA - there is no need to file WA estate tax return - see more information here - http://dor.wa.gov/content/FindTaxesAndRates/OtherTaxes/tax_estate.aspx
3) Washington State does not have a personal or corporate income tax. So - there is no reporting requirements.

Let me know if any clarification needed.

JACUSTOMER-24s2m9iz- :

so we have to file two returns? a CA non resident return & then a federal return for WA? or will the one CA return cover us this year? and if thats the case, since we are WA residents with no State tax liability, we do not have any state withholding taxes withheld from my husbands CA state pension(PERS) so then if we file a CA return, then we will have a state tax liability ? This is all SOOO confusing!

LEV :

You will file a federal tax return regardless of where you live - that is not a "federal tax return for WA." You will include into the federal tax return all your income from all sources.

JACUSTOMER-24s2m9iz- :

and when you say income "earned" after your parents died....we sold their house which was their only asset and the sale was finalized beginning of Nov.& money was distributed to the 4 children as part of the trust. Since the money from the home sale was distributed after the parents death, does that now make it taxable income?

LEV :

Some states have state income taxes and thus require to file state tax returns. As you will have income from CA sources - you might be required to file CA income tax return in additional to the federal tax return. However - because you are non-residents of CA - you will report only income from CA sources.

LEV :

That is a little confusing because - you originally wrote that you inherited estate money - and did not mention that you inherited a property.

JACUSTOMER-24s2m9iz- :

the house was listed as part of the trust. the house was sold and proceeds divided between the 4 children as part of the trust. so is the money inherited from the sale of the house taxable "income"? sorry to be so slow on understanding all of this...but it's very confusing to me.

LEV :

You also did not mentioned that your parents had a trust.

JACUSTOMER-24s2m9iz- :

does that matter?

LEV :

Yes - that is very important. As you parents had a trust - the trustee had to file trust's tax return.

LEV :

And teh sale of teh property would be reported on the trust's tax return - form 1041.

LEV :

Also the trust will provide each beneficiary with teh schedule K-1 - www.irs.gov/pub/irs-pdf/f1041sk1.pdf

JACUSTOMER-24s2m9iz- :

what does that mean? My parents had not had to file a tax return for the past several years and had not owed any taxes for the past 10 or so. the trustee (my sister in law) is required to file a trust return? does she do this now during regular tax season? how does that impact the money that was distributed to all of us?

LEV :


If you are a trustee - you also need to be familiar with IRS publication - www.irs.gov/pub/irs-pdf/p559.pdf

LEV :

Yes - the trust is the one who sold teh property (not you) - and the trustee has to file trust's tax return

LEV :

the schedule K-1 you should receive from the trust will report taxable portion of your distribution (if any)

JACUSTOMER-24s2m9iz- :

so back to the original question....is that money declared as income on OUR tax return?

LEV :

Most likely no - but to answer exactly - you need to receive a schedule K-1 from the trustee.

LEV :

Any taxable part of distribution should be reported on that schedule. I suggest to contact the trustee and verify.

JACUSTOMER-24s2m9iz- :

ok...so let me clarify....we file a non resident CA return. We file a federal return. We do not have to file a WA estate return. Since we are filing a non resident CA return,(for the short sale of our home) we might have to pay state taxes on our pension income that is from CA employment but is direct deposited into our WA bank account?

JACUSTOMER-24s2m9iz- :

or since we are clearly filing a NON RESIDENT return, we will not be liable for CA taxes except as related to the house sale that we owned and did the short sale on???

LEV :

 


You file a federal return as you normally do. You do not file a WA estate return. You should receive a form K-1 from the trust and only if there is reported a taxable distribution from the trust to you - you might need to file a CA tax return as non-resident. You do not report the sale of the property because it is sold by the trust not by you. You do not owe any CA income tax on your pension from CA because you are non-residents of CA.

JACUSTOMER-24s2m9iz- :

ok Lev....I think that clears it up! THANK YOU SO MUCH for your info & your PATIENCE! it must be so hard to try to explain to those of us who just don't get it! You were great.

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