Should I file a AZ state income tax if I live in CA, own a rental property in AZ, collected 13,600 in rent, but my federal shows a -11,000 for rental and royalties?

[KatrinaB]

You must file a nonresident tax return in the state of Arizona if you have earned any Arizona source income. Rental income does count as an Arizona source income. Please view page 7 of the Arizona nonresident booklet below.

https://www.azdor.gov/Portals/0/ADOR-forms/TY2016/10100/140NRBooklet.pdf

Please view the Turbo Tax FAQ below for instructions on how to file a nonresident tax return.

https://ttlc.intuit.com/replies/3302052

[RealityG]

I am in a similar situation and this is the answer I received from the Arizona Dept of Revenue:

Arizona nonresidents earning income from Arizona sources and who meet the filing threshold are required to file a nonresident tax return (AZ Form 140NR).  Rental income from a property located in Arizona is considered income from Arizona sources.  If you are required to file a nonresident return, report the rental income on Form 140NR, line 21.  

Note:  Arizona does not allow individuals a adjustment to reduce current year income with net a operating loss carry forward utilized on the federal return.  

To determine if you meet the filing threshold for a nonresident see Form 140NR instructions, page 1) for the table listing the filing thresholds for each type of filing status. 

https://azdor.gov/forms/individual/arizona-nonresident-personal-income-tax-booklet 

It looks like the income threshold is $15,000, so it looks like you do not have to file if you did not collect rents beyond this amount. Hope this helps!

[IG3]

I have a similar situation. I just own a a rental property in AZ. According to TurboTax I should pay some $200 tax in AZ, but my only income in AZ is from that rental property and is below $15,000 threshold as specified at https://azdor.gov/forms/individual/arizona-nonresident-personal-income-tax-booklet

I actually bought already TurboTax AZ TAX YEAR 2019 but it seems that the software was suggesting to do the wrong thing as is not checking for the threshold.

Can anyone at IntuIt confirm that the software is not checking for that and might be wrong if total AZ gross income is below $15,000? Also, can I get refunded for the TurboTax AZ TAX YEAR 2019 add in purchase?

Thank you!

[retire88]

Yes. The filing threshold is $15,000 AZ Gross Income. However, to determine what your AZ Gross Income is, you have to complete form 140NR and the calculated number is on Line 26. Basically, when you go through the calculation, you need to enter "Rents, royalties, partnerships, estates, trusts, small business corporations from federal Schedule E." on Line 21. If this is a loss which is highly likely after expenses and depreciation, then your AZ Gross Income on Line 26 will be negative and below the $15,000 filing threshold. Bottom line, no filing is required if Schedule E net income is below $15000.

[JemB]

Can you clarify your "note"? I found this on the 2019 140NR form for AZ....

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 2019 Arizona gross income can include only Arizona source losses you used on your 2019 federal return.

This seems to contradict your "Note". ??

I am trying to figure out if, when allocating AZ source income if I am supposed to use net income BEFORE the loss carryover from prior year is applied (which is a positive number) or the income AFTER the loss carryover from prior years is applied (which is negative)

Your note makes me believe I use the number BEFORE loss carryover but the excerpt I found makes me believe I am to use the number AFTER the carryover.

Thanks!!

[BillM223]

"Schedule E net income is below $15000."

This is in error. The meaning of "gross income" for a rental property is gross rental receipts, not net. 

Note that "adjusted gross income" is not the same as "gross income" and for Arizona has different filing requirements.

See https://azdor.gov/file/8206/download?token=TptmSZ-d

[retire88]

According to form 140NR, AZ gross income is defined on line 26 and includes federal Schedule E income on line 21.

I purchased the AZ state tax and followed Turbotax's instructions on filling it out. I then looked at line 26 for the AZ gross income and it is less than $15000 so I do not meet the filing requirement.

I recommend everyone who is concerned do the same and keep it as a record.

[retire88]

Look at line 21 of  AZ Form 140NR: 21 Rents, royalties, partnerships, estates, trusts, small business corporations from federal Schedule E.

So it is asking you to transfer the Federal Schedule E income which includes income AFTER the loss carryover from prior years is applied.

[Dave61948]

Question....

Have a rental property in AZ, but live in Texas

Rental income is less than the $15000 level

Do I have to file either a 140NR or a 140NR-SBI

Not sure I understand why they have two forms

Also, are you paying the taxes on the rent amount and not the profit after expenses?

Thanks

[MayaD]

Form Form 140 SBI is for Small Business Income Tax Return

Form 140NR 140NR s for Nonresident Personal Income Tax Return.

As an AZ  nonresident, you must report income derived from Arizona sources and file form 140NR.

How do I file a nonresident state return?

You pay taxes on the profit after deducting your expenses from the total rent received. 

Where do I enter income and expenses from a rental property?

[Dave61948]

Can you clarify for me.  Condo in AZ unrented for maint last year and rental income only about $14,000.  As I read the below, looks like if gross income under $15000, we would not have to file a return this year.

Is that correct?

Thanks

In the state of Arizona, individuals must file a tax return if they are:

• single, married filing separately or head of household and the Arizona Adjusted Gross Income (AAGI) is at least $5,500, or the Gross Income (GI) is at least $15,000;
• married and filing jointly and the AAGI is at least $11,000, or the GI is at least $15,000.

 Non-Residents

In the case of nonresidents, A.R.S. § 43-1091 provides that Arizona gross income includes only that portion of federal adjusted gross income which represents income from sources within this state.  Income of a nonresident from the wages or salary received by the nonresident employee who is in this state on a temporary basis for the purpose of performing disaster recovery from a declared disaster during a disaster period as defined in section 42-1130 is not considered income from sources within this state.

For Arizona income tax purposes, A.R.S. § 43-104 defines the term “nonresident” to mean every individual other than a resident.

Arizon section 43-1411. Partnership, individual partnership liability

An individual carrying on a business in partnership shall be liable for income tax only in his individual capacity

[HopeS]

If you have rental income in another state, it is recommended that you file a nonresident return showing the rental income/expenses from the property regardless if the property is generating income or losses. Your rental property might be generating passive loss which is carried forward each year to be used to offset income in future years. In addition, there is depreciation expense which is deducted from your property which upon sale of the property will be "recaptured for tax purposes".

Depreciation and Depreciation Recapture

Also, please review the following definitions :

AAGI- Arizona Adjusted Gross Income is simply the Federal Adjusted Gross Income (AGI) adjusted for the state taxes. (For example, there may income/deductions allowed for federal that are/are not allowed for the state.)  This is the amount before any credits, personal exemptions, or standard/itemized deductions.  If the only thing you are reporting is your rental property, then your AAGI will be the net profit for AZ from that rental.

AZ Taxable Income is the net profit from your rental minus credits, personal exemptions, and standard/itemized deductions.  If your AZ Source Income is a negative number, and your only income in AZ is the rental property, then you will have a passive loss to carryforward.
 

GI  - Gross Income is the total of every dollar received on your rental property before deductions or adjustments. Your AZ Source Income should be the same as your Gross Income (GI) for Arizona.

@Dave61948 

[davoti2]

I am reading the thread, I actually have a similar situation, I have been naively thinking if have rental loss after deductions, I don't need to file non-resident income tax in AZ, so I did not file for a couple of years until I read this information. (sigh!) Should I just start to file this year or need to amend all the previous years? A lot of papers to dig and works.

Thanks

Dave

[DMarkM1]

It depends.   If your only AZ source income is a rental property in the state and the AZ part of the amount on your federal Schedule 1, line 5 is a negative number you do not have a filing requirement in AZ for this year or previous years.  Your AZ Gross Income on line 26 of the AZ Form 140NR will be zero.   

If the AZ amount on Schedule 1, line 5 is a positive number you may have an AZ filing requirement.  For tax years 2020 and before if your AZ Adjusted Gross Income (in your case only AZ rental property part of schedule 1, line 5) is below 5,500 you do not have an AZ filing requirement in those years. 

For tax years 2021 and forward if the AZ amount on Schedule 1, line 5 is a positive number you must prorate the AZ Standard deduction for your filing status by the ratio of AZ gross income to Federal Gross Income.  For example your AZ gross income (S1,L5) is $4000  and your federal gross income (1040, line 9) is 50,000 then your ratio is 4000/50000 = .08  

If your filing status is MFJ the standard deduction is 25,900 x .08 = 2072.   So you would have an AZ filing requirement since your AZ income (4000) is above your AZ standard deduction for nonresidents (2072). 

As for any passive loss limitation carryovers, those are accounted for in the Schedule 1, line 5 amount.  In whatever year those losses are allowed they will be reflected in that rental income line.  

The same will be true for any depreciation recapture.  That will be reflected on schedule D and line 7 of the form 1040.  Any AZ portion of that gain is part of AZ Gross Income that you would add to the AZ portion of Schedule 1, line 5 to arrive at your net AZ gross income.  Again, if it is negative, no filing requirement, but if it is positive you must use the proration formula.

Here is the AZ reference for filing requirements and the definition of AZ Gross Income from AZ tax code ARS 43-1091.

@davoti2