Out of state rental
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kcates2020
Level 1

Out of state rental

Hello,

 

I'm a resident of Utah. In December of 2020, I purchased a home in Arizona to be used as a rental. Since it was so late in the year, I had zero rental income. Turbotax figured $443 in depreciation, and a little over a thousand dollars in expenses. When I purchased and downloaded the additional state(Arizona), it seems to have only transferred my depreciation of $443 to my Arizona non-resident return, and with that it shows me owing AZ $11.  I was expecting a non-deductible loss of around $1500 due to a lack of passive income, but overall income exceeding the threshold. Even with depreciation only, I shouldn't owe tax on depreciation. Help? What did I enter wrong. Everything is figuring accurately on my Federal return.

5 Replies
DianeW777
Employee Tax Expert

Out of state rental

The nonresident status is the issue, which isolates the property for loss.  Arizona (AZ) tax law follows federal tax law when it comes to rental properties other than the depreciation

 

They have passive activity loss limitations to extent of income.  Stick with basic depreciation and they will be similar.

 

Issues will exist if you have other properties though in other states as federal allows losses from one property to offset gains from another property while nonresident states only allow that states property. TurboTax handles this situation.

 

For future use, you are required to file a return by using the rental income, not the net amount after expenses. 

 

AZ Nonresident Instructions (click the link to download nonresident instructions 2020 - excerpt page 7)

As a nonresident, your Arizona gross income may include some of these losses. You may consider only those passive losses that arose from Arizona sources. Your 2020 Arizona gross income can include only Arizona source losses you used on your 2020 federal return.

 

Depreciation: (excerpt page 12)

As a nonresident, you may take the allowable subtraction that is only related to income sourced to Arizona.

Carl
Level 15

Out of state rental

This does not relate to the issues addressed in this thread, but I just want to make you aware.

When one is required to file taxes for more than one state, it is important that the "resident" state return be done last. This is because many states have reciprocal tax agreements which the TTX program can handle just fine. However, do the resident state tax return last, to reduce the possibility of the "final checks" performed by the program just prior to e-filing, flagging errors.

 

kcates2020
Level 1

Out of state rental

Thanks so much. Very helpful. 

kcates2020
Level 1

Out of state rental

Thank you. Very helpful!

kcates2020
Level 1

Out of state rental

Thank you! Very helpful!

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