I'm in disagreement with @ColeenD3 here.
When doing taxes, rental property will practically always operate at a loss. Especially if there's a mortgage on it. That's because when you take into consideration the mortgage interest, property taxes and property insurance you can deduct, along with the depreciation you are required to take by law, those four items alone are generally enough to exceed the total rental income received for the property for the entire year. Add to that the other rental expenses you're allowed to take and you're practically guaranteed to always operate at a loss on paper, at tax time. So your rental losses will always exceed the rental income every year.
But in the year you sell the property, particularly if you sell at a gain, you are required by law to recapture all prior depreciation taken and pay taxes on it in the year of the sale. That recaptured depreciation will be taxed anywhere from 0% to 25% no matter what.
Therefore I say you need to report the rental income/expenses on a MA state return to cover yourself in the tax year you sell or otherwise dispose of the property. When you sell it, since the asset is located in MA and produces income (or you can call it cash flow) in that state, you need to be able to show the state a consistent "history" of this, particularly your depreciation deduction. That way you're not questioned (i.e.; audited) by the state on depreciation recapture in the tax year you sell it.
Understand that weather you report it to the state each year or not, you "will" pay taxes to the state on your sales gain when you sell it, as well as the recaptured depreciation.
