Under the Personal Info tab scroll to the bottom and elect to edit "Other State Income". Select YES, then in the drop down menu select 'District of Columbia" and Continue. Click continue again to completely leave the My Info section.
As you work through the rest of the program, you will indicate that your military W-2 is only subject to PA taxes. When you get to the rental & royalty income section, pay attention to detail so you indicate that income is subject to federal taxes and DC taxes.
Now weather or not PA will tax you on the DC rental income depends on the reciprical tax agreement (if any) between DC and PA. But the important thing here is that when you get the federal return done and are ready to start your state returns, save your *RESIDENT* state return for "LAST". That way, if there is a reciprical tax agreement between PA and DC, the program will be able to account for that, and will reduce or eliminate taxes on the rental income, in PA.
Overall though, since rental property always operates at a loss "ON PAPER" at tax time, you won't pay any taxes on that rental income anyway. But you still need things reported correctly. Otherwise, when you sell the property you risk being over-taxed on the sales gain by your resident state.
Finally, and most important of all. Since you have income not only from multiple sources, but from multiple states, it is important that you take your time and read everything on every screen, so that your non-military income is properly allocated across state tax returns. Remember, save your resident state return (PA) for *last*. That is important.
