Live in Michigan / Indiana rental income

[Anonymous]

I live in Michigan and own rental property in Indiana.  Regarding state taxes: Turbo Tax asks if rental income was earned entirely out of state. I answered yes and the software shows I don't have to pay Michigan taxes on this income. Indiana & Michigan are reciprocal states. Should I have answered no regarding out of state income? Or do I file an Indiana state tax return to pay taxes on the rental income?

Thank you in advance : )

[ReginaM]

Yes, you  need to fix your return,  According to the State of Michigan, the reciprocal agreement with Indiana works  If you are a Michigan resident, all of your income is subject to Michigan tax, no matter where it is earned, except income reported on federal schedule C, C-EZ, E or F earned from out-of-state business activity.  

So for your rentals, you need to pay State of Indiana Taxes.  See State of Michigan Reciprocal Agreement.

While in the State of Indiana in TurboTax continue through the on-screen prompts until you come to this screen, this is where you will be prompted to select your rental income to be reported in Indiana.

Hope this helps!

[Anonymous]

ReginaM,

So you're saying I pay taxes on rental income to both states? 🤔

In my  Michigan return, TurboTax asks "On your federal return, did you report income or losses from a business, rental, or royalty property which you operated entirely out of the state?" I answered yes since I am in Michigan and my rental property is in Indiana. The result is that Michigan didn't tax the income.

If I answer no, then Michigan will tax the income (which I assume is correct) but then I'm not answering the TT question correctly? (Doe the problem lie in the way TurboTax asks the question?)

Sorry if I'm not understanding. I just want to get this right.

Thank you for your patience with me!

[Irene2805]

Michigan does NOT tax your rental income because it's reported on a Schedule E in the federal return.  So you did your MI return correctly.

Indiana should tax your rental income because the source was in Indiana.

[Anonymous]

Thank you, Irene2805; this was what I was hoping to hear.

So confusing!~