I need some help with how to file state tax returns for my parents.

My parents were living in Indiana most of 2007 until they sold their home a few days before Christmas. Now, they live in Pennsylvania. I know that for federal return, it doesn't matter where they live, but I'm uncertain how to handle this scenario for state returns.

Should they file a full time resident Indiana State return? Is it necessary to file a part time resident return for Pennsylvania? If so, how to avoid being double taxed?

Thanks in advance...

They should file part-year resident tax-forms for both IN and PA. Each state taxes the income earned only while a resident of that particular state, so there is no double taxation. You need to set the date of change of residence and use it consistently - it should be the date they moved to PA, which may not be the same as the date they sold their home in IN.