How to allocate out-of-state property sale on Michigan return with MI-4797?
I'm a Michigan resident and sold an inherited rental property in New York in 2024. I'm almost positive I have entered everything correctly across my Fed 1040, Sch E, 4797, etc. and non-resident New York return with everything allocated to NY. I'm an active participant, but definitely not a real estate professional so no QBI. MI defines this as "Business Income" but makes pretty clear in the tax code that any property sold in another state or country is not taxable in MI and I've never considered or reported this "business" to be apportioned across both states.
Therefore, I want to make sure I'm doing the right thing by zeroing out all lines in the "E Column" on the MI-4797 parts 1 & 2 and rows 21 & 23 on part 3. For some reason the form automatically prints with "100" for percentage of gain subject to MI tax in the line 19 box even though it's clear on the attached Sch E that the property is in NY. My MI-1040 and Schedule 1 look correct as far as adding the huge passive loss to my Michigan AGI and then subtracting the gain and depreciation recapture.
Quick background is capital gains and depreciation recapture are offset by passive suspended losses as far as Federal AGI is concerned. Received handsome step-up in basis 5 years ago, got immediate appraisal, and have reported rental income, expenses and depreciation/amortization to all 3 tax authorities for the 5 years I owned it. Capital gain for each improvement asset has been prorated with the structure and land gain proportionally. As I estimated before closing, no tax is owed to MI or NY on the sale - if I've entered everything properly, of course.
I'd be so grateful for any reassurance or feedback from anyone who may be knowledgeable about these Michigan forms. Thank you!!