Reporting income on home sales

Baltimoresun.com's tax-advice column features three experts from the Sparks accounting firm SC&H Group answering questions about preparing your return every Monday until April 15.

Don, Baltimore: I changed my residence from Virginia to Maryland in February 2007. I had owned a home which was my residence in Virginia and which I put up for sale when I left the state. I sold the house in March 2007, shortly after I had relocated my residence to Maryland. I have a substantial gain on the sale of the Virginia real estate (well above $250,000). Should that gain be treated as Maryland income or Virginia income for income tax purposes?

SC&H Group: This situation creates some administrative issues in terms of taxation between the states. The correct answer is that the sale of the property, the taxable portion, is taxable in Virginia, since the gain is from the sale of real property in that state. In addition, since you are a Maryland resident when the gain was recognized, that income is also taxable in Maryland. Maryland's tax laws allow for a credit in Maryland for nonresident taxes paid to other states, to mitigate some of the effect of this double taxation.

For Virginia, you would need to file a part year resident form for the first two months of the year and a nonresident form to report the sale of the home. The nonresident tax due would be available, in large part, as a credit on your Maryland part year tax return. Refer to the instructions for both states and each type of form, as these issues are somewhat complicated.

Dave, Baltimore: What is the best way to estimate the value of items of clothing that you give to Goodwill? I've seen suggested values, but they seem extremely high.

SC&H Group: The IRS allows an itemized deduction for the fair market value of charitable donations. Clothing and household items must be in good used condition or better.

"Fair market value" means what someone would be willing to pay for the item at the time of donation, not the original purchase price. A common method to determine fair market value is to examine the prices for similar items at a thrift store.

The charity cannot assign a value for you, but may provide their store prices as a guideline. Age and condition of the property must also be taken into consideration when assigning a value.

John, Laurel: Is there an IRA to which one can contribute after turning 70 1/2 ?

SC&H Group: The IRS does not allow a contribution to a traditional IRA in the year you reach age 70 1/2 or any year thereafter. The IRS does allow a contribution to a Roth IRA even after reaching age 70 1/2, and there are no mandatory distribution rules. Roth IRA contributions are made with after-tax dollars, so there is no current tax benefit to making the contribution. Retirement distributions taken from the account are then tax free.

If you are still working, you may participate in an employer-sponsored plan, such as a 401(k) or SIMPLE plan.

Answers to selected questions are published in The Sun's Money & Life section on Sundays and online on Mondays.

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