If i have a rental property in Illinois but did not live there i'm a resident of California can I only file taxes in California? or do I file in both states?

Per Illinois, if you were a nonresident of Illinois during the entire tax year, you must complete and file Form IL-1040 and Schedule NR

• if you earned enough taxable income from Illinois sources to have a tax liability (i.e., your Illinois base income from Schedule NR is greater than your Illinois exemption allowance on Schedule NR), or
  
• are entitled to a refund of Illinois Income Tax that was withheld from your pay in error.

In regards to your rental property, if it generated a net income or loss, then you must report it.

For more information, please see Page 3-Line 15 Rental real estate, royalties, partnerships, S corporations, trusts, etc: http://www.revenue.state.il.us/taxforms/IncmCurrentYear/Individual/IL-1040-Schedule-NR-Instr.pdf

You should note that the Illinois Exemption Allowance is prorated by the percent of IL income to Total Federal Income.

So if IL income is small, say 5% then the Exemption Allowance is small too.

you are correct. 

You should file the IL return even if you are not required to do so because it runs at a loss to preserve the passive loss on the books for use in future years.