I live in Massachusetts and make income in Maine on rental property. do i need to file Massachusetts tax return?

[GeoffreyG · Accepted solution]

The answer to your question is that you will need to file both Maine and Massachusetts state tax returns, along with your federal tax return.  Please allow us a few moments to explain that.

Because you either own or receive income from a rental property in Maine, you will need to report this income on a Maine state tax return.  The rental property is physically situated in Maine, so that makes it Maine-source income.  As you are a resident of Massachusetts, this Maine return will be a nonresident state tax return.

But, as a resident of Massachusetts, you will also need to report this very same income on your Massachusetts state tax return, as Massachusetts taxes all the income of its residents, no matter where they go in the world or the source of their income (for example, in another state or another country).

Thus, you are taxed on the very same rental income by both Maine and Massachusetts.  This is an identical situation that would occur if you, as a Massachusetts state resident, were to take a job and work in Maine as a nonresident, receiving taxable wage income.  The only difference here is that we are discussing rental income, and not W-2 wage income.

However, the relief process from the double taxable (also called mutually-taxed income) issue still has the same solution.  Once you complete your Maine and Massachusetts state tax returns, you will be able to claim a state taxes paid credit on your Massachusetts return for taxes paid to Maine.  This will eliminate (or at least mitigate) the double-taxation burden.

In TurboTax, it is vitally important that you complete your tax returns in the correct order, or otherwise the state taxes paid credit may not calculate properly.  That completion order is as follows:

1) Do your federal tax return and have it pass an error check

2) Do your nonresident state (Maine) second, and finish it completely

3) Do your resident state (Massachusetts) last, and only after following the completion of the first two tax returns.

Finally, you may benefit by viewing the following two TurboTax webpages, which contain many more details on mutually-taxed income:

https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Multiple-States---Where-T...

https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Multiple-States---Figurin...

Thank you for asking this important question.

[Julieb360]

What about living in MA and renting out a property in NH where there is no income tax?

[TomD8]

@Julieb360 --  Your rental income from NH is fully taxable in your resident state of MA and must be reported on your MA tax return.  NH does not tax this type of income, so you have no reporting requirement for NH.