The answer to your question is that you will need to file both Maine and Massachusetts state tax returns, along with your federal tax return. Please allow us a few moments to explain that.
Because you either own or receive income from a rental property in Maine, you will need to report this
income on a Maine state tax return. The rental property is physically situated in Maine, so that makes it Maine-source income. As you are a resident of Massachusetts, this Maine return will be a nonresident state tax return.
But, as a
resident of Massachusetts, you will also need to report this very same income
on your Massachusetts state tax return, as Massachusetts taxes all the income of
its residents, no matter where they go in the world or the source of their income (for example, in another state or another country).
Thus,
you are taxed on the very same rental income by both Maine and Massachusetts. This is
an identical situation that would occur if you, as a Massachusetts state
resident, were to take a job and work in Maine as a nonresident, receiving
taxable wage income. The only difference here is that we are
discussing rental income, and not W-2 wage income.
However, the
relief process from the double taxable (also called mutually-taxed
income) issue still has the same solution. Once you complete your Maine
and Massachusetts state tax returns, you will be able to claim a state taxes
paid credit on your Massachusetts return for taxes paid to Maine. This will
eliminate (or at least mitigate) the double-taxation burden.
In TurboTax, it is vitally important that you complete your tax returns
in the correct order, or otherwise the state taxes paid credit may not
calculate properly. That completion order is as follows:
1) Do your federal tax return and have it pass an error check
2) Do your nonresident state (Maine) second, and finish it completely
3) Do your resident state (Massachusetts) last, and only after following the completion of the first two tax returns.
Finally, you may benefit by viewing the following two TurboTax
webpages, which contain many more details on mutually-taxed income:
https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Multiple-States---Where-T...
https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Multiple-States---Figurin...
Thank you for asking this important question.
