Do I need to do a tax return for out of state rental property?

[evans62]

I live in Virginia and own a rental property in Maryland.  At the beginning of the interview, TT says I may have to do a Maryland state tax return if I earned income from real estate in another state.  Now I have finished, and I haven't done a Maryland State return.  Do I have to do one or not?

[DS30]

It depends.

Yes but only if you have rental income in your nonresident state where the property is located and you meet the minimum filing requirements for that state as a nonresident status filer. For any taxes paid to this nonresident state, you will be allowed a resident state tax credit.

If you have nonresident rental losses and this is your only source of nonresident income/loss, you have no filing requirement in that nonresident state. However, you may want to consider filing a return anyway so that you can establish with your nonresident state that the rental property produced a passive loss (which can be carried forward and used against future passive income).

You will still need to include your rental activities (income or loss) on your federal and resident state tax returns.

If you have rental income from both MD and non-MD sources, you will need to make an allocation of this income on your MD nonresident state income tax return (screenshot)

[evans62]

TurboTax is combining all of my rental property gains and losses together in the Maryland return, including my properties NOT in Maryland.  So the number being reported to Maryland cannot be correct.  Not sure how to fix this.

[DS30]

If you are filing a MD nonresident tax return, you should get a screen where you are able to allocate income. It will ask for your non -MD source income. You will need to adjust this amount so that only your MD source income is being reported on your MD nonresident state tax return.

The MD screen for this allocation is titled "Non-MD income allocation" I include a screenshot with my answer.

[evans62]

Thanks, this does help.  But the non-MD source income includes passive loss from previous year, both MD and VA.  There's too many steps in between for me to figure out how to calculate only my MD source income.

[erigion]

I'm having the same problem. At the Non-MD income allocation screen TurboTax has already taken into account the loss I had for MD rental property with the profit from my other property not in MD. Trying to manually enter a loss in the MD form throws an error.

[DS30]

Is this your only source of MD income /loss? If so, you will not need to file a nonresident MD state income tax return to report this loss because you will have no MD rental income to offset this loss.

[erigion]

Yes, it's my only source of income/loss in MD. Other people here have said to file anyway for carryover loss and depreciation information, which I don't even see being entered on any of the forms sent to MD.

[DS30]

Yeah, you don't have to file MD. Just keep track of any MD related unused passive rental losses so when you have MD source rental income in a future year, you can reduce that rental amount by any unused MD passive rental losses from prior years. Otherwise you can file a nonresident MD state return by mail to account for this loss.

[Shah]

 I own real estate partnerships in 25  states.  I am non resident in these state.With depreciation, on federal tax returns, I am having substantial losses on each and every state, Do I need to file  all states income tax returns. net net I am loosing monies on each and every states and if I file  each state tax return, I am not having taxable income, and in all cases they need federal returns . Plus requirements of each state is so different, It makes very cumbersome. The state taxes do not ask for depreciation schedule. All of them look at the state taxable loss amount and taxes are zero When I sale my property, I(f I have gain , I can always file state taxes return based on federal return for that year.  Thus dilemma is should i file state returns when I have  taxable loss!!!

  Shah

[hfluss]

Helpful, but where on the MD non-resident return do you reduce the current year income/gain with the loss that was carried over? Does not appear to be one of the allowable listed subtractions on Form 505.

Thanks!

[GeorgeM777]

The loss should carryover from your federal return.  Did the carryover loss reduce your rental income on your federal return?  Line 10 on Form 505 is for rental income which carries over from your federal return.  Thus, check your federal return.  If the carryover loss reduced income on your federal return, then that same number should also be on your MD Form 505, line 10.  

@hfluss

[Samuello]

Hello - 

I am a Virginia resident and purchased a rental property in Illinois in 2022. I have rental losses from my Schedule E, but because my income exceeds $150K, I cannot claim those losses, so on my Federal return it's 0.

In Illinois, this is my only source of nonresident income (or loss).  TurboTax asks me to allocate my Federal income to Illinois, but for Rents and Royalties, TurboTax pulled in $0 (because my income exceeded $150K). Do I put zero for my Rents and Royalties, or do I enter my actual loss from Schedule E? Also, whether I entered 0 or the loss, I am not asked again about my property. Does the Schedule E details just get carried over the state return?

Thank you.

[DMarkM1]

If the rental income ($0) is all the IL income you have then you do not have a filing requirement in IL.  Here is the IL reference (extract below).  Your IL Schedule NR line 46 amount would be zero.  The amount ($0) that transfers over is correct.  Once you actually have IL income the amount will transfer automatically from your federal return.  In fact everything needed with regards to the rental income will automatically transfer to the IL return.  

Bottom line is when your IL return does not show a tax liability you do not have an IL filing requirement.  

For future years:  If your IL rental property income is zero or less you do not have an IL filing requirement.  If the property generates income (after losses applied) then complete an IL nonresident return and file it and pay if there is a tax liability and don't file it if there is not a tax liability.     

"a nonresident must file Form IL-1040 and Schedule NR if

• you earned enough taxable income from Illinois sources to have a tax liability ( i.e., your Illinois base income from Schedule NR, Step 5, Line 46, is greater than your Illinois exemption allowance on Schedule NR, Step 5, Line 50), or
• you want a refund of any Illinois Income Tax withheld in error. You must attach a letter of explanation from your employer."