I have a rental house in Oregon and live in CA, why do I have to file an Oregon return if CA and Or are receprocating states?

[ChelsiE2 · Accepted solution]

[edited: Apr 12, 2016 3:15pm]

California and Oregon do not have a reciprocal agreement.  

Therefore, you will be required to file an Oregon Nonresident return to report your rental property income and expense to the state or Oregon.  On your Oregon return you will receive a credit related to the tax that you pay to California for this rental income (if applicable).  You'll want to prepare your California return before you prepare the Oregon one.

[toshi-minoura]

We live in Oregon and have a rental house in California.

As this case is opposite to the case described by ChelsiE2, in Oregon the income from the rental house in California is fully taxed in Oregon, and this amount is applied as credit to the non-resident state tax in California.

A copy of federal tax return must be attached to each of the state tax returns. It is not necessary to attach a copy of California's tax return to Oregon's tax return.

One question I have is whether it is necessary or not to attach a copy of Oregon's tax return to California's tax return. Turbotax states in the instruction that Oregon's tax return is not necessary, but it is included in the PDF file of tax  returns to be filed to California.

In our case, the tax to be paid to California is $0 as the income in California is small. The same income is taxed more in Oregon as the tax on it is computed in higher bracket. Therefore the credit from Oregon tax is more than the tax in California.

[ErnieS0]

Are you e-filing or filing by mail @toshi-minoura? As you said, it you e-file, TurboTax will attach a copy of the Oregon return on the nonresident return sent to California.

Attach a copy if you are mailing your return to California. Even though the income is small, California needs to confirm (1) that you filed an Oregon return and (2) the amount of income and tax paid to OR.

California says: You must attach Schedule S, Other State Tax Credit, and a copy of your tax return(s) filed with the other state(s) to your California tax return. Retain a copy of other state tax returns, along with a copy of this form for your records.

Other State Tax Credit

[Carl]

You'll want to prepare your California return before you prepare the Oregon one.

I think you got that backwards. You want to complete your "RESIDENT" state tax return "LAST". Otherwise, tax credits may not be applied where they are applicable.

[toshi-minoura]

> I think you got that backwards. You want to complete your "RESIDENT" state tax return "LAST". Otherwise, tax credits may not be applied where they are applied to the non resident site as credit. .

California and Oregon agreed to use Reverse Credit.  Therefore  the tax paid by a person living in  the resident state (Oregon)  for the income received from the nonresident state (California)   is applied as credit in calculating the income tax by the nonresident  state (California) .

In short, Credit is from resident state (Oregon) to nonresident  state (California). Therefore, the tax calculated for the resident state (Oregon) is not affected by credit. As far as Turbotax 2021 is concerned,  income from rental house is assigned to the state of its address, and the tax calculations  for federal, resident state, and nonresident state are tightly integrated. A change in one of these is automatically propagated to others only with minor interactions.

This calculation of credit is done by  Schedule S that can be part of  California State Tax  Form 540, 540NR, or 541.

[toshi-minoura]

The original question was raised by a person who lives in California and has a rental property in Oregon. However, I live in Oregon and has a rental property in California. Therefore, I got confused. 

When I wrote my response, only the last response was displayed. So I got confused. Anyway, I am sorry.