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It depends on the state. Some states have a "gross income" (receive rents even though the net income is zero) reporting requirement. Most go by net income.
You don't say what state. But it really doesn't matter. Yes, you are required to report the rental income/expenses to the state also, if the state taxes personal income. While you will not pay taxes to the state, since rental property practically "ALWAYS" operates at a loss, you need to file anyway. That's because when you sell the property, you will pay taxes on any gain realized. But you can deduct from that taxable gain all of your carry over losses and depreciation thus reducing your tax liability. But if you don't file with the state every single year showing those carry over losses and depreciation, then you can't deduct them from your gain in the year you sell the property and you will pay "MORE" taxes to the state then. Significantly more.
Additionally, in some states such as hawaii, you have to pay a GET tax on your "gross" rental income every year. Since the state requires all landlords to register as such with the state, if you don't file a HI state return and pay your GET tax, they will revoke your state registration and if your tenant doesn't pay rent, there's nothing you can do about it.
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