Arizona 140NR (non-resident) – File or not to file when rented for the first time and reported a loss

[ofg007]

My rental in Arizona was rented for 17 days (the last 17 days in December) and reported a loss (with or without depreciation factored in). This is the first time I put my property on rent and I have not filed AZ nonresident tax before as the property was not rented.

According to the Arizona 140NR non-resident booklet, marrying filing jointly must file if gross income exceeds $27,700 (see p. 7). This is prorated for by the “percentage of your federal adjusted gross income that represents your Arizona gross income (income ratio shown on line 27 of Form 140NR).”

To calculate this ratio, according to the booklet (p. 9), “If Arizona gross income is equal to or less than zero (negative), and the federal adjusted gross income is more than zero, enter 0.000 on line 27.”. Hence, I figured that in my case, the ratio is 0, hence, I must file only if my income exceeds 0.

Since my Arizona income is negative, then I do not need to file. Please confirm. TT has the AZ form filled with zeros for AZ income. Yet, it does not give any indication if I must file or not. I find it awkward and counter-intuitive to file a form with zeros for AZ income.

Any input is much appreciated. Thanks.

The 2023 Arizona 140NR form and instructions can be found at:

https://azdor.gov/sites/default/files/2023-12/FORMS_INDIVIDUAL_2023_140NRBooklet.pdf 

[DianeW777]

No, you do not need to file.  Arizona (AZ) is looking only at the rental income for 17 days (not the expenses which is what the IRS looks at for rental income) then you are not required to file if you income is below the filing requirement ($27,700).

If I assume the gross rents is below the filing requirement, then you do not need to file the AZ tax return for 2023.

[ofg007]

Thank you! Indeed, the gross proceeds (rents) are significantly under the $27,500 threshold.

What was confusing was the reference to the ratio of AZ income to Federal income to be used to adjust the filing threshold. The reference to income was unclear, it appeared to refer to Rent - (Expenses+Depreciation). Turbotax used this formula to fill in the federal income value for rental properties on the AZ form, yet asked me to fill in AZ rental income (which I have it as a loss (negative) on my federal schedule E form).

The AZ instructions appear to refer to income or gross income as net proceeds, i.e., Rent - (Expenses+Depreciation). This was apparent by the reference to "If Arizona gross income is equal to or less than zero (negative)..." (p.9). If it was referring to only rents (proceeds), how would it be possible to be negative? I am correct with this interpretation? I believe it may not impact the situation this year, but may be at play if the figures change in the future.

Thanks again for your input.

[DianeW777]

Yes, you are correct with your interpretation, and it is confusing.  And also that it will not impact this year, in my example below it does not indicate a net amount.

I read only from the page titled Nonresident Personal Income Tax Return: : 

Are You Subject to Tax in Arizona? 

If you are in this state for a temporary or transitory purpose or did not live in Arizona but received income from sources within Arizona during 2023, you are subject to Arizona tax.  You are subject to Arizona income tax on all income derived from Arizona sources. Income from Arizona sources includes the following: 

• • wages; 
• • rental income; 
• • business income; 
• • the sale of Arizona real estate; 
• • interest and dividends having a taxable or business situs, in this state; and 
• • any other income from an Arizona source. 

@ofg007