Rental Property Income in California Loss in Arizona

[TaxUserMA]

Need help with filing state tax returns.

Background: I live overseas and am a non resident for California and Arizona. I have a few rental properties in California and Arizona. My rentals in California generated income, but my Arizona properties have suffered tremendous losses that greatly offset the California income. My federal taxes shows $0 in taxable rental income.

Question 1: Do I need to file AZ income taxes because the losses exceed the rental income. I read other forums that recommend filing anyways.

Question 2: Do I need to file CA income taxes? I am trying to complete the California state tax portion of Turbotax under Rental and Royalty Summary, but the income from the California properties won't transfer over from the Federal Tax side. When I click edit to the California rental to try to adjust the income and add it myself, Turbotax Premier keeps stating

"No Adjustment Required

You do not need to adjust this asset for California purposes. Now we'll return to the asset summary screen."

Thanks for the help!

[ThomasM125]

You need to file the Arizona return as your rental receipts are considered income even though your rental expenses may offset the receipts so that you don't have any taxable income. You need to do the same for California. You enter your rental receipts and expenses on the federal tax return and they should flow down to your California return without adjustment on the state return. You may be showing negative income on your California return since you have losses on the rentals, but that would be correct. There is not a separate schedule on your California return to report your rental income and expenses. Your adjusted gross income from your federal return will show on your California return, then you make adjustments to get down to your California taxable income. 

[TaxUserMA]

Hi,

So, I think i understand better now. I need to file tax returns for CA and AZ tax returns because I had rental income generated from both states.

Regarding my Turbotax issue, I think I was confused because normally Turbotax automatically transfers the federal tax information to California tax side. This time though, it asked me to input the amount of rental income was generated from California. I initially put $0 because I thought Turbotax would transfer it, but if I put $0, I have no taxable income in California. Which logically does not make sense since I did generate income in California even if it was overcome by the losses in Arizona.

Thank you very much! I think this resolves my question.

[ErnieS0 · Accepted solution]

TurboTax will not automatically transfer nonresident rental income to California because your federal rental income combines your California and Arizona rental income. If your AZ loss was larger than your CA income, you are either showing $0 or a net loss on federal.

If you are a nonresident of CA and AZ you will report your net CA rental income on your CA nonresident return and your net AZ rental loss on your AZ non-resident return.

Filing your Arizona return will give you a rental loss carryforward to offset income in future years.