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TSSN-33

Questions and Answers on Nonresident Capital Gains Tax

This TSSN is obsoleted by AN 94(2)


Effective January 1, 1990, nonresident individuals who sell real property located in Connecticut may be liable for a Capital Gains Tax.

The following questions and answers are to help you determine if you are subject to the Connecticut Nonresident Capital Gains Tax.

1. Q. Who must file a Nonresident Capital Gains Tax return, Form 394NR?

A. Anyone who recognizes a capital gain for federal income tax purposes who is:

(1) A nonresident individual who sells or exchanges real property located in Connecticut.

(2) A nonresident individual who is a partner in a partnership that sells or exchanges real property located in Connecticut.

(3) A nonresident shareholder in an S Corporation that sells or exchanges real property located in Connecticut.

(4) A beneficiary of a trust or estate that sells or exchanges real property located in Connecticut.

2. Q. What is the tax imposed on?

A. (1) The net gain from the sale of real property located in Connecticut. Some examples of real property are land, vacation homes, rental properties and personal residences.

(2) Supplemental gains from the sale or exchange of certain depreciable property located in Connecticut as reported on Form 4797, including those ordinary gains not reportable as capital gains for Federal Income Tax purposes.

3. Q. When is the tax due?

A. For calendar year taxpayers, on or before April 15 in the year following the sale. (People who are not calendar year taxpayers should refer to the note at the end of this publication.)

4. Q. What is the tax rate?

A. A nonresident's net capital gain is taxed at the rate of 7%; however, the tax due shall not exceed 5% of federal adjusted gross income.

5. Q. When filing Form 394NR, what other information is required?

A. Form 394NR must be accompanied by copies of the applicable supporting schedules as filed with the Internal Revenue Service and any supporting schedules used to calculate the Nonresident Capital Gains Tax.

6. Q. What are the penalties for late payment?

A. The penalty: 10% of the tax due. Interest: 1.25% of the tax due per month or fraction of a month. For late filing of returns when no additional tax is due: Penalty of $50.

7. Q. Must I file an Estimated Capital Gains Tax return?

A. Form 394ESA must be filed on or before June 15 of the taxable year if you owe tax of $2,000 or more on a capital gain for the first five full months of the taxable year.

Form 394ESB must be filed on or before February 15 in the year following the sale if you owe more than $2,000 in tax.

In either situation a payment of 100% of the tax must accompany the return.

In addition, a completed Form 394NR must be filed by April 15 in the year following the sale.

8. Q. Am I allowed additional time to file my tax return?

A. Yes. A four month extension of time will be allowed, provided you file a tentative return, Form 394TA, and pay the best estimate of total tax due. The deadline is April 15 for calendar year taxpayers. You must file for a State extension even if you have filed for a Federal extension.

9. Q. Can I prepay my Nonresident Capital Gains Tax?

A. Yes. An advance payment will be accepted at any time by using Form 394TA. You must still file Form 394NR by April 15, even if no additional tax is due.

10. Q. Are there any nonresidents with capital gains from the sale of Connecticut real property who are not subject to the Nonresident Capital Gains Tax?

A. (1) An individual, 65 years or older, whose Federal Adjusted Gross Income after subtracting taxable Social Security benefits, Tier I Railroad Retirement benefits and gains from the sale or exchange of capital assets is less than $10,000 is not subject to the tax.

(2) Any taxpayer whose Federal Adjusted Gross Income is below the level at which the taxpayer would be required to file a Federal Income Tax Return.

11. Q. Under what circumstances would a sale by a nonresident not be subject to the nonresident Capital Gains Tax?

A. (1) Federal Exclusion: Federal law allows the exclusion of up to $125,000 from the sale by an individual 55 years or older of a dwelling used as a principal residence for at least 3 of the preceding 5 years. If this exclusion is elected for Federal Income Tax purposes, the excluded amount will not be subject to the Connecticut Capital Gains Tax.

(2) State Exclusion: An individual 65 years or older who sells a dwelling located in Connecticut which has been used as a principal residence for at least 5 of the 8 preceding years shall be exempt from the tax on the gain from such sale. This is a once-in-a-lifetime State Capital Gains Tax exemption for an individual (or for both spouses who file a joint tax return). There is no dollar limit on this exemption.

12. Q. If a nonresident sells real property after moving from Connecticut, may the nonresident defer the gain for 24 months by using Federal Form 2119?

A. Yes, but if a replacement resident is not purchased within the two-year replacement period, the gain is subject to Nonresident Capital Gains Tax.

13. Q. May capital losses be used to offset gains from the sale of Connecticut real property?

A. Only losses from the sale of Connecticut real property can be used to offset the gain.

14. Q. Are there any provisions for loss carryovers for nonresidents?

A. Yes, for tax year 1990, a nonresident may deduct prior year losses of Connecticut real property provided the nonresident was a Connecticut resident in the year that the loss occurred.

15. Q. Must a nonresident who has a net capital loss or no gain for Federal Income Tax purposes file and pay the Nonresident Capital Gains Tax if the nonresident has a gain on the sale of Connecticut property?

A. Yes. This tax is imposed on the net gain of real property located in Connecticut.

16. Q. Can nonresidents claim credit for a tax paid to their home state?

A.

No.

17. Q. Are installment sales of real property made by a nonresident subject to tax?

A. Yes. Any gain received on or after January 1, 1990 is subject to tax even if the sale occurred prior to January 1, 1990.

18. Q. If a part-year resident sells Connecticut real property as a nonresident, does he/she file a resident or nonresident tax return in Connecticut?

A. Any person who moves into or out of Connecticut during the taxable year is a part-year resident. A part-year resident shall file Form 394PY if he/she is subject to the dividends or interest income tax or if he/she realized any capital gain during the taxable year and Form 394NR if he/she sells Connecticut real estate as a nonresident.

19. Q. Where can I obtain tax forms?

A. By calling the Forms Unit, Department of Revenue Services at (860) 297-5773.

Additional information may be obtained by calling Taxpayer Service, 1-800-382-9463 (Connecticut callers only) or (860) 297-5962 (Hartford area and out-of-state callers.)

You may also write to:

Taxpayer Service Division
Department of Revenue Services
25 Sigourney Street
Hartford, CT 06106

 

 

For more information see Form TSSN-29, "Capital Gains, Dividends and Interest Income Tax for Full-Year and Part-Year Residents".

Note: People who are not calendar year taxpayers must file:

Form 394NR 15th day of the 4th month following the end of the taxable year.
Form 394TA 15th day of the 4th month following the end of the taxable year.
Form 394ESA 15th day of the 6th month of the taxable year.
Form 394ESB 15th day of the 2nd month following the end of the taxable year.

TSSN-33
(New 11/90)