I am a non-resident of Maryland. Do I need to report a net income loss this year on a rental property in Maryland?

[Carl · Accepted solution]

Yes, you must file an MD return reporting the rental income/expense/loss.

Residential rental real estate will practically always operate at a loss "ON PAPER" at tax time every single year. Especially if there's a mortgage on the property. But in the year you sell the property you will have a taxable event - which is possible even if you sell at what you "think" may be a loss. Therefore you are required to report your rental property regardless of having a gain or a loss.

As a special note, if your resident state taxes personal income then save completing your resident state return for last. Otherwise, the program may not correctly take into account any reciprocal tax agreements that may exist between your resident state, and the non-resident state of MD.

[dc_peter2]

I have the same situation - non-resident of MD with rental income (most years a loss). I have been using TurboTax Deluxe edition and it has not asked me to file a return with Maryland. Is this right?

[Critter-3]

There is 2 ways to trigger a state return ... either you say you have income from that  state in the MY INFO tab or you request the state in the state tab.  Your failure to do either is not a program  error. 

[dc_peter]

While I am at fault for not recognizing that I had income from another state, I would have hoped that TurboTax would have alerted me. I had to enter the address of the rental property and all of the income details. Maybe a screen should have popped up to say - "It looks like you have income from another state" - you need to file a non-resident return there as well.

[Critter-3]

Sorry but the screen  in the MY INFO section is pretty straight forward ... do you have income from another state and it is a yes/no answer. Not sure how much simpler they can make it ... the user is responsible for understanding and correctly answering all the questions in the interview.   As you can see there is a rental option in the list. 

[Carl]

If you received income subject to state taxes, then you need to file a tax return. Otherwise, the state has no way of "knowing" that income is not taxable.

It is NOT COMMON for residential rental real estate to operate at a taxable gain ON PAPER at tax filing time. Especially if there's a mortgage on the property. It is more common for rental property to operate at a loss ON PAPER every year at tax filing time. That's because when you add up the deductions of mortgage interest, property taxes, property insurance and the depreciation you're required to take by law, that total almost always exceeds the rental income received for the entire year. Add to that the other allowed rental expense deductions (such as maintenance, repairs, etc.) and you're practically guarantted of showing a loss on the rental activity each and every year.

If fact, those losses will most often exceed the rental income. When that happens those losses now allowed are carried over to the next year. So with each passing year those carry over losses grow and accumulate. You can't realize those losses until the tax year you sell the property.

So you need to file a state tax return every year to "show" the carry over losses. Then in the year you sell you use those carry over losses to reduce the taxable gain (if any) realized on the sale.