If I have rental property in California, but live in Virginia, do I have to claim the rent I receive as income in both California and Virginia?

[DDollar · Accepted solution]

Yes.  You will have to file a non-resident California tax return and  report the income and expenses from your rental property located in California.  You will also have to report the income on your Virginia tax return.  Virginia will give you a credit for the California income tax that you pay.  The credit will be limited to the amount of Virginia tax assessed on the same income; therefore, if tax in Virginia is less than California, you won't receive a credit for the entire amount paid to California.

[tomdanker]

What if all you had were passive losses on the California rental real estate? Still have to file both States?

[Carl]

Yes, you still have to file both states. Doesn't matter that you will show a loss on paper. It is very uncommon for rental property to ever show a taxable gain - especially if there is a mortgage on the property. In fact, you will show ever increasing losses each year that will continue to increase and accumulate with each passing year. But in the year you sell or otherwise dispose of the rental property, that is when you will have a taxable gain which will include the depreciation recapture.

But the bottom line is, if you have an income producing resourse in CA (such as rental property) then you are required to report the income and expenses to both CA and your home state if your home state also taxes personal income.

WHen doing this with Turbotax it is important that you complete the non-resident return *FIRST* and do your resident state return last. This will allow the program to take into account any reciprocal tax agreements that exist between your resident and non-resident state, and adjust/credit your resident state taxes accordingly.