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Say we have a full-year nonresident of Michigan, who has

  • wages of W, attributable to Michigan, and
  • a capital gain of G from selling stocks.

Since they are a nonresident, the capital gain should not be taxable by Michigan. Therefore, in Michigan Schedule NR they would fill out the Income Allocation table like this:

          | A. Total | B. Michigan | C. Other State(s) |
----------+----------+-------------+-------------------+
5. Wages  |        W |           W |                 0 |
8. Gains  |        G |           0 |                 G |
12. Total |    W + G |           W |                 G |
14. AGI   |    W + G |           W |                 G |

The instructions for line 14 say

Enter amount in column C on Schedule 1, line 13 or, if a negative amount, …

so they would put this in Schedule 1:

Subtractions:
13. Income attributable to another state: G

The instructions also reference another form, MI-1040D, which would allow them to “allocate” their capital gains income. They would fill out MI-1040D and get something like this:

         | F. Federal | G. Michigan |
---------+------------+-------------+
12. Gain |          G |           0 |

… because the gain G can't possibly be allocated to Michigan, right?

The instructions for line 12 say:

If line 12 is a gain, carry the gain amount in column F to Schedule 1, line 12, and carry the gain amount in column G to Schedule 1, line 3.

so they would put this in Schedule 1 (Additions Subtractions):

Additions:
3. Gains from Michigan column of MI-1040D: 0
Subtractions:
12. Gains from federal column of Michigan MI-1040D: G

At this point, you can see something is horribly wrong. There are now two subtractions of G in Schedule 1:

Subtractions:
13. Income attributable to another state: G
12. Gains from federal column of Michigan MI-1040D: G

This makes absolutely no sense. What could have gone wrong here?


One possibility: Perhaps this instruction in line 12 of MI-1040D

Nonresidents and part-year residents, see instructions for Schedule NR, line 8

is actually meant to be executed in lieu of writing the gain in line 12 to Schedule 1 directly?

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