In 2004 while no longer MD residents, what had been our primary residence was sold and should have been exempt from Capital Gains. However, due to some new regulations that the settlement attorneys did not understand, an amount of about $16K was taken from the sale. After many calls to MD tax offices, we were advised that the best course was to file a MD nonresident return for 2004: MD income = 0, Tax withheld = 16K, Refund due = 16K, and the money was finally refunded. The problem is, this refund has been reported to the IRS as
2005 income. It appears that one way to deal with this would be to file an amended Federal form for 2004 and claim an additional $16K deduction to balance out the added income on the 2005 tax. Hopefully, the refund from 2004 would more or less equal the additional 2005 tax. But, is there any more simple way to handle this. We were just getting back wrongfully withheld funds and never thought of including it on the 2004 Federal forms. Dave
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