When reporting rental income, do I enter the gross amount of income or the Federal adjusted amount?

[Themushj]

This question was asked a few years ago, but I have a lingering question and an observation.

We live in South Carolina and have some land we rent in Indiana. It is the South Carolina Turbotax screen below I am working on to enter the correct information.

It appears to me Turbotax Does Not transfer the amount for Out-of-State Income or Gain, at least for the South Carolina State form.

And agreeing with most of the other posters on the link below, it is not clear if one should enter the Gross Amount or the Net Amount. Since you are listing the "Other Additions" on the next screen (adding them back in so it looks like), it seemed to be you enter the Net Amount. But I am not thinking that is not the case.

Anyone know for sure? Do you enter the Gross Amount or Net Amount. IE. From Federal Form Schedule E line #3 (Gross) or line 26 (Net)?

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/when-reporting-rental...

[MarilynG1]

Since South Carolina starts their tax calculations with Federal Taxable Income, if you entered your rental income/expenses on Schedule E in your Federal return, you don't need to enter your rental income again in your state return.  When you're first going through your SC return, you're asked to allocate amount of rental income that belongs to SC, so you don't need to enter it again as an 'addition'. 

However, if you had a loss on your Indiana rental property, you would add that amount back in, since South Carolina does not recognize an out of state property loss.  If this applies, enter the loss amount from your federal return as an addition, and be sure to file a non-resident return for Indiana to claim the loss against future income there.

Here's more info on SC Rental Loss.

@Themushj 

[Themushj]

I appreciate the quick answer. But I am not comprehending that being correct. The SC1040 Instructions list the following on that line on the actual tax form:

Line h: Out-of-state income/gain
Enter:
● income from out-of-state rental property
● income from a business located outside South Carolina, or
● gain from real property located in another state.
Enter the amount as reported on your federal return. Check the appropriate box to indicate the type of
income or gain.

I know it is a difficult question as another Turbotax representative shared it should be the NET amount. So there is some difficulty in finding the correct understanding.

On the actual form, line 1e is where it appears you enter back the items you expensed as deductions and line H the income. I think the confusion is on the word "gain." But I am now thinking that is in reference too selling property and making a gain. In our situation, we just have regular income. 

[DaveF1006]

For your question about Line H (Out-of-state income/gain) and Line 1e (Other additions): South Carolina wants the net amount. This is handled as a net gain because the SC1040 instructions call for the net amount reported on your federal return. 

On your federal return, out-of-state rental income isn’t shown as a gross amount—it comes from Schedule E as a net profit or loss.

 

 

[Themushj]

"because the SC1040 instructions call for the net amount reported on your federal return."

I believe you are correct, but I am not finding any information on the instructions stating to use the NET amount. On page 6 of the instruction on this subject, I find only the following additional information (besides what I quoted above).

"Line f through line w are adjustments which are subtracted determine your South Carolina taxable income."

Do you have any other in-print reference or link where it specifically states to use the Net Amount??

[DavidD66]

As MarilynG1 said in her answer above, any rental income from Indiana (or any other state) should be reflected in your federal Adjusted Gross Income; therefore, you should not have to enter anything unless you realized a loss on the rental.  If you did need to add your rental income or subtract your rental loss, it would be the NET amount, not the gross.  The gross amount is rental "revenue".  The net (after expenses) amount is either income or loss.  The instructions may not specifically state that, but that's what it is - by definition.  

[Themushj]

Thank you for your assistance. 

I find myself in a new state: state of confusion. 🙂

In another thread, the answer was given below which basically states you do need to enter the NET amount from the Federal form. It is not just for a loss.

I "think" the reason it has to be entered is that on line 14 of the South Carolina 1040 form, there is a Total nonrefundable credits. This is reflected on SC1040TC line 1. Total credit for taxes paid to another state."

Without entering that NET amount, there would be no credit paid on the states paid to another state.

AnnetteB6

Employee Tax Expert

Since the SC tax return starts with the Federal taxable income reported on your Form 1040, the adjustments made on the SC return need to be the same numbers that went into determining the Federal taxable income.  

To determine the portion of Federal taxable income due to rental income and expenses, you would take the gross rental income and subtract expenses, giving you the net income from the rental property.  This is the amount used in the calculation of your Federal taxable income, so this is the amount that would be subtracted from the SC return to determine the SC taxable income.  

The SC Form 1040 instructions do not make it completely clear which amount to use (gross or net) other than to say you enter the amount as reported on your Federal return.  Ultimately, it is the net rental income that impacts the Federal taxable income, not the gross rental income.

[DaveF1006 · Accepted solution]

It depends. The SC1040 instructions for Line h are short, but using the Net Amount follows how South Carolina starts its tax calculations.

South Carolina uses "rolling conformity," which means state income tax is based on your federal taxable income. Since your Federal Taxable Income already includes the net amount (gross rent minus expenses from Schedule E), any adjustment to remove out-of-state income should match the amount included in your federal total.

Gross Rental Income isn't included in your Federal Taxable Income. Net Rental Income is. If you subtract the total amount on your SC return, you'll remove expenses that weren't there. This can cause an incorrect (and likely too low) state tax bill.

The instructions for South Carolina Schedule NR (used by non-residents or residents with out-of-state income to figure their SC ratio) are clear about what “net” means. 

For Line 11 (Rents, royalties, etc.) under the Income and Exclusions section, it says:

“Enter in Column B only the income or loss from property located in South Carolina... indicate losses in brackets.”

In tax terms, “income or loss” refers to a net amount. There’s no such thing as a “Gross Loss”—a loss that only happens after expenses are subtracted from gross receipts. 

@Themushj 

[Themushj]

So the short answer to your response is . . .

{enter NET amount} on the Turbotax screen for the South Carolina portion. 

I believe you have provided the correct answer. I contacted a SC tax account who confirmed this just yesterday. "In this case you would report the net amount of the rental.  Since SC starts with Federal taxable income, you would reduce the SC taxable income by the net IN income from the rental."