Non_Resident Tax After Installment Sale

[Richcpaman]

Ok, what about this?

Resident of NH, who sold property in DE 5 years ago, still has an installment sale.  There is capital gain and interest on the sale.  Does he have to pay DE a Non-Resident tax on the Capital Gains and or Interest?  TP never lived in DE.  

Rich

[jklcpa]

Yes, because it is derived from a source of income or tangible property within DE. See Del code, Title 30 sec 1121 and 1124(b )(2) for Income Derived from Sources within Delaware.

[Richcpaman]

JK:

Thank you for that.  And I have read that subsection.

If the DE building was sold at a loss, and there was a mortgage, and only interest was being paid, I do not believe that we would have to pay DE NR tax. 

Since it was sold at a gain, plus interest, we have to pay DE NR Tax.

That does not make sense to me.  In the year of sale, you have to pay, but in the years after, you have disconnected from the state and have an intangible asset, which is excluded.

Rich 

[joanmcq]

You are amortizing the gain over several years. 

[jklcpa]

It does make sense if you look back to sec 1121 and the words " as if such individual were a resident" and all of sec 1122 and apply that 1124. If that nonresident were a resident, they would pay tax on the entire gain over the installment period.

Delaware would say that it isn't an intangible, it is a deferral of the gain to future periods because of the installment sale.  It *might* convert to an intangible in someone else's hands, such as someone purchasing the note at a discount, or possibly a nonresident beneficiary of an estate inheriting an installment note with future payments left on it.

[Richcpaman]

It is only $700 to DE this year. And it was paid off this year.  But we could amend back to 2012 and get about $5k back.

Every state would say "show me the money!" 

Thanks!  It helped a lot.