Multi-state rental property LLC tax filing requirements

[JASimon]

We (two partners) established an LLC in Colorado and purchased one rental property in Montana which  generated rental income during 2022, but incurred a net loss during the first year.  We filed our Federal 1065, 8825 & K-1s.  Do we need to file a Montana tax return. a Colorado tax return or no state returns with a net loss?  What is required next year when we have a net profit?

[AliciaP1 · Accepted solution]

A profit or loss does not change if or where you report your business activities.  Your partnership will always file a federal 1065 and appropriate forms and schedules.  It will then need to also report in the states where it is generating income (even if it results in a loss for the year).

You will need to file a Montana Pass-Through Entity return for 2022, but TurboTax Business does not support the form at this time.  You can download the 2022 MT PTE form to complete it.  Since you do not have any business in Colorado for 2022, you do not need to file a CO 106 Partnership return.  The partners may need to complete both a Montana and Colorado individual return depending on their state of residence and other personal factors.

For 2023, the partnership will file the Federal return and the MT PTE form again as long as it has retained the property in MT.  If you purchase and begin renting a property in another state, you will need to file the appropriate partnership return in that state as well.

[JASimon]

Very helpful response.  Thank you.