You established a "California-source" business activity (purchased and listed the property in 2025 as a rental).
Even though the tenant didn't move in until 2026, the IRS and the California Fra...
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You established a "California-source" business activity (purchased and listed the property in 2025 as a rental).
Even though the tenant didn't move in until 2026, the IRS and the California Franchise Tax Board (FTB) consider a property "placed in service" the moment it is available and listed for rent (December 14, 2025).
Thus, you can begin claiming pro-rated expenses for 2025 (depreciation for the last 17 days of the year, property management fees, advertising, etc.).
You generally must file a Form 540NR if:
You have any California-source income (even $1 of gross rent) .OR
your worldwide gross income exceeds CA’s filing threshold (for 2025... $22,941 for a single filer under 65).
Filing a 2025 return allows you to "document" any start-up costs. California allows you to carry-over passive rental losses to future years to offset future rental profits.
Open or continue your return.
In the "Personal Info" section, set your Resident State to your actual home state.
Select California (when the program asks if you "earned money in another state", This will generate Schedule CA (540NR), which separates your total income from your CA-source income.