Rental Income from property in a non-resident state

[tomandjerry1]

I reside in MASS and have residential rental real estate in Vermont.  I'm using TurboTax Deluxe to file my Fed, VT-nonresident, and MA-resident returns in that order.  When completing the MA return I reach the "Rental and Royalty" page containing the entry from my FED return for this rental in VT.   Apparently I need to opt to EXCLUDE this from my MA return?  I'm a bit confused as to why TurboTax hasn't already done this? The property description includes the fact that it' in VT.

In order for me to exclude it I must choose the "edit"  button and then am immediately presented with the question "Should this activity be excluded from the MA return".  For this year the rental actually resulted in a loss so I don't owe any VT income tax, but before I selected "exclude" for this rental the loss was being applied to my MA income.   I did my VT-nonresident return AHEAD of my MA return and included the rental information there.  Are there cases where I'd need to also report this rental income/loss in MA as well? 

[DianeW777]

No, it is not excluded from your resident state return of MA. Your resident state requires all worldwide income to be included in your state return. If you have taxable income from another state, as in your situation with rental real estate in VT, then your resident state will give you a credit so that you are not paying tax on the same income twice. In your case there will be no credit because, as you indicated there is an overall loss on the rental.

It appears you are required to file the VT return based on 'Gross Income'.

• Who Should File VT?  You must file an income tax return in Vermont:
• if you are a resident or part-year resident of Vermont, or a nonresident but earned Vermont income, and
• if you are required to file a federal income tax return, and
• you earned or received more than $100 in Vermont income, or
• you earned or received gross income of more than $1,000 as a nonresident. See 32 V.S.A. § 5861 and § 5823(b) (1-6) for information on sources of income.

[tomandjerry1 · Accepted solution]

Wow. Thanks for such a speedy reply but I'm still not quite clear on the situation when there's a loss on the rental from the property in my non-resident state.  If I don't exclude the loss then my MA tax is reduced significantly.  I understand about the situation if there's actual positive taxable income from the rental, but am I still allow to keep the entry for the rental in VT even though there's a loss?  

[DianeW777]

The requirement for VT is the gross income and not the net income. If the gross income for the rental is greater than $1,000 you must file even though there is a net loss and no tax.

You include all income on the MA return as a resident. If the loss was not allowed it would be limited automatically on your MA return but you should not remove it manually.  They allow what the federal law allows:

• MA Income Tax Treatment of Passive Losses: The Massachusetts treatment of passive activity losses for Massachusetts residents is the same as the federal treatment. Allowable losses are the same losses that are allowed on federal Form 8582, line 19, to the extent that the losses were not deducted.

@tomandjerry1

[Edited: 04/12/2025 | 10:07 AM PST]