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Posted by Katie on April 9, 2007, 3:29 am
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DavidAndro...@gmail.com wrote:
> I am part owner of an S-Corp based in Ohio. I am currently a
> resident of California. I have suspended at-risk limited
> losses on this corporation from prior years, which were
> incurred when I was a resident of Ohio. Last year, the
> corporation made money by selling some of the assets in the
> corporation. The amount of gains last year is less than the
> suspended losses of the prior years (the parts attributed
> to me)
>
> Do I have to pay any federal taxes, and/or taxes in
> California, and/or taxes in Ohio? I am thinking the
> following: On Federal taxes, the suspended losses will cover
> the gains. Net..no tax.
>
> On Ohio taxes --- can Ohio tax a non resident? If they do,
> can the suspended losses cover the gains.
>
> On California taxes - can the suspended losses cover the
> gains? Or do I have to pay California taxes.
>
> I do need to see a CPA, but wanted to get a quick opinion on
> this.
Of course Ohio can tax the gain. If you have income from an
Ohio source, Ohio can and will tax it. If you owe tax to
Ohio, and California taxes the same income, California will
give you credit for the Ohio tax.
For California purposes, if you were a full-year resident in
2006, you recalculate carryforward items as if you had been
a California resident for all relevant years. So you can
use the suspended losses, but you must recompute the amounts
to account for any differences between California and
federal law -- just as the current year income must be
adjusted.
If you were a nonresident for any part of 2006, the rules
get pretty complicated. The FTB has an excellent
publication on this, Pub. 1100
(http://www.ftb.ca.gov/forms/misc/1100.pdf). It includes
examples relating to partnerships, though not S corps; the
result should be about the same. Basically, for purposes of
Col. D of the Schedule CA-540NR (total income from all
sources as if California resident for all relevant periods),
you would include the S corporation income and the suspended
losses, both recomputed by California's rules. In Col. E,
you would include only the S corporation income that arose
during the part of the year when you were a resident (either
prorate by the days or months, or actual cutoff), and could
use the suspended losses only to that extent. It isn't
clear to me how this would affect the remaining loss, if
any, that could be carried to subsequent years for
California purposes.
As for Ohio, it seems logical that the losses could be used
to offset the Ohio-source gains. However, Ohio law is
complicated (like California, Ohio computes taxable income
by its own rules, rather than starting with federal taxable
income or AGI and specifying certain adjustments), and I
haven't looked into it.
You may need two advisers for this one -- one in Ohio and
one in California.
Katie in San Diego
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