DianeW777
Expert Alumni

Investors & landlords

The nonresident status is the issue, which isolates the property for loss.  Arizona (AZ) tax law follows federal tax law when it comes to rental properties other than the depreciation

 

They have passive activity loss limitations to extent of income.  Stick with basic depreciation and they will be similar.

 

Issues will exist if you have other properties though in other states as federal allows losses from one property to offset gains from another property while nonresident states only allow that states property. TurboTax handles this situation.

 

For future use, you are required to file a return by using the rental income, not the net amount after expenses. 

 

AZ Nonresident Instructions (click the link to download nonresident instructions 2020 - excerpt page 7)

As a nonresident, your Arizona gross income may include some of these losses. You may consider only those passive losses that arose from Arizona sources. Your 2020 Arizona gross income can include only Arizona source losses you used on your 2020 federal return.

 

Depreciation: (excerpt page 12)

As a nonresident, you may take the allowable subtraction that is only related to income sourced to Arizona.

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