If you received income subject to state taxes, then you need to file a tax return. Otherwise, the state has no way of "knowing" that income is not taxable.
It is NOT COMMON for residential rental real estate to operate at a taxable gain ON PAPER at tax filing time. Especially if there's a mortgage on the property. It is more common for rental property to operate at a loss ON PAPER every year at tax filing time. That's because when you add up the deductions of mortgage interest, property taxes, property insurance and the depreciation you're required to take by law, that total almost always exceeds the rental income received for the entire year. Add to that the other allowed rental expense deductions (such as maintenance, repairs, etc.) and you're practically guarantted of showing a loss on the rental activity each and every year.
If fact, those losses will most often exceed the rental income. When that happens those losses now allowed are carried over to the next year. So with each passing year those carry over losses grow and accumulate. You can't realize those losses until the tax year you sell the property.
So you need to file a state tax return every year to "show" the carry over losses. Then in the year you sell you use those carry over losses to reduce the taxable gain (if any) realized on the sale.
