We live in Illinois but sold a 2nd home in Arizona where we spend winters. We file our Illinois return as full time residents or do we need to split our time by state?

You are a resident of Arizona and file a resident return. Spending time at your second home is just visiting the other state. Your driver's license, voting, will, big things, indicate your state of residency.

For the sale of the second home, it is reported on your AZ nonresident return. Only AZ income  goes on the AZ return. Follow these steps:

1. Prepare the nonresident AZ return first.
2. Then complete your IL return.
3. IL will give you credit for double taxed income.

It isn't possible for the program to create a credit before it knows the liability. Your returns may be wrong if you do not prepare the states in this order.

You get credit for the lower state tax on the lowest taxable amount.

• Each state calculates taxable income differently. 
• Each state has its own tax rate/ system.
• You get the lowest of both categories as a tax credit.