California resident: how to report Oregon rental property income?

[tax_is_taxing]

I work and live in California. 

I have a rental property in Oregon with profit in tax year 2017. Although, I have prior tax years (tax year 2016 and earlier) passive loss carry-forward -- which is way more than the profit in tax year 2017. So it should offset any profit that I made in tax year 2017.

I am working on California tax, it appears that TT Premier want to tax the whole 2017 profit amount, disregarding the carried-forward loss. What am I doing wrong ?

Few questions:

1. Should I work on Oregon non-resident tax first, or California resident tax first?
2. Do I have to pay tax only in Oregon, or both California and Oregon?
3. How to handle carry-forward passive loss ?

If that matters, I have always used Turbotax in last 4-5 year.

[DS30 · Accepted solution]

If you have carryover passive losses from prior years and these prior year passive losses are more than the current year's profit, then these losses should offset your current year profits.

If you did not file any prior year OR nonresident state tax returns to report the passive losses in those prior years than you will need to go back and determine the OR passive loss carryovers and apply them against your current year' profit on your OR nonresident state income tax return. (You will want to work on your OR nonresident return before you work on your CA resident return.)

How this rental profit is taxed in CA will depend how you treated your prior OR rental losses on your CA resident state return in prior year. If you had  other passive gains in prior years from other non-OR rentals to offset your prior OR passive losses then you may have to pay taxes on your OR profits in the current year in CA.

For your CA return, you should follow the same treatment for the OR rental profits as it is being treated on your federal return.

For your OR return, then same treatment applies as to your federal treatment of this OR rental only. This is where you made need to determine your passive loss carryovers and add them to your OR nonresident state income tax return.

Here is additional information about filing in multiple states (select "see more answer" to view the entire attachment)

https://ttlc.intuit.com/replies/3300797

[bnkhoi]

I suppose your answer applies to 2019 tax also.  I'm in the exact situation like the asker, CA resident with a rental house in OR purchased in 10/2019 with no rent income and lots of expenses (fixing up).  I did my CA return before OR.  Should I now delete CA and redo it because you said the OR return should be done first.

[Carl]

1. Should I work on Oregon non-resident tax first, or California resident tax first?

You should always do the "resident" state return LAST. I'm sure that OR and CA have a reciprical tax agreement of some sort, and this is the only way the program can "correctly" take such an agreement into account. When you complete the CA return last (your resident state) your CA tax on that rental income (or consideration for loss) will be taken into account and your CA tax liability on that specific income (or credit for loss) will be figured.

1. Do I have to pay tax only in Oregon, or both California and Oregon?

Depends on the tax agreement. I could be a reduction in  your CA tax liability on that income based on the difference in tax rates (if any) between the two states. Or it could be a split of some sort between the two states. Or it could be no CA tax on that income with full OR tax on it. It just depends. But if you do the resident state tax return last, the program will correctly take any reciprical tax agreement into account.

For this reason, *DO* *NOT* file *ANY* tax return, until you have completed *ALL* tax returns and are satisfied with the results.

1. How to handle carry-forward passive loss ?

The program will deal with that for you usually. When you start working on the specific property that has the carry forward losses, be sure to check the box to indicate you have passive losses from last year, in the Property Profile section. If I recall, the program will then ask you to enter the losses, which you get from the prior year's IRS Form 8582. Just make sure you enter the loss from "that" specific property on the 8582, and not the "bottom line" total carry forward losses on all properties.

[Carl]

@bnkhoi 

Sometimes (most of the time actually) if you just work through the resident state return again that will get the numbers right. You shouldn't have to change any data you entered or selections you made. But double-check as you go. This will allow the program to "re"do the math where, if, and when it needs to.

[bnkhoi]

Thanks very much for your detailed reply.  I opened my Premier state tax files again, looked at the CA forms and could see that it took into account my rental property in Oregon although I did CA first.  For 2020, I will remember your advice and do OR first since I expect to make some gain on the rental.  Thanks again.