Nonresident Tax Return Filing Requirement

[sidekickin]

Does TurboTax software have the capability to generate a Form 4562 for depreciation expenses, along with Form 8582 (Passive Activity Loss Limitations), and input the result on line 24b of Schedule 1?  (NOT Schedule E or Schedule C, as stated earlier).  Line 24b of Schedule 1 allows for deductions for expenses related to rental of PERSONAL property (NOT real estate) that is engaged in for profit that's not a business (OTHER INCOME).  I have been unable to do this. 

[DianeW777]

You are correct.  If you are not engaged in the activity of renting personal property (this may be determined differently by the IRS depending on facts, circumstances and longevity) then you can enter the income on Schedule 1, Line 8k, then enter your manually calculated depreciation on Schedule 1, Line 24b.  

If you not engage in an ongoing concern, as opposed to an occasional rental of personal property, then this might go through without a hitch. This is a decision you will need to make.

1. Sign into your TurboTax account
2. Select Wages & Income > Scroll to Less Common Income > Select Miscellaneous Income, 1099-A, 1099-C
3. Select Income from renting out personal property (not rental real estate or farm rentals)
4. Enter your income and your expense 
5. This will populate on the appropriate lines of the Schedule 1
6. See the images below.

[swingdancer777]

@sidekickin You likely have already filed your Federal and OK Nonresident tax form (Form 511-NR: "Oklahoma Nonresident/Part-Year Income Tax Return"). But in case you have not filed the OK Nonresident tax form yet and are still trying to figure out how to file to establish your net loss for 2021, this may help.

1. You need to file Form 511-NR: "Oklahoma Nonresident/Part-Year Income Tax Return". You will need numbers from that for the 2nd form below.  I used Turbotax Home and Business-2021, and it DID generate Form 511-NR.  (Turbotax will generate this form, but if you want the Nonresident info packet from Oklahoma which has instructions, to get some understanding of the calculations, the link is here: https://oklahoma.gov/content/dam/ok/en/tax/documents/forms/individuals/current/511-NR-Pkt.pdf).

2. To establish the net loss for 2021 in Oklahoma, you will need to file Oklahoma Form 511-NR-NOL.  Your earlier intuition about needing to file taxes in Oklahoma for 2021, even though you don't "have to" b/c you don't owe any money, were correct if you want to establish a net operating loss.

You can get this form here: https://oklahoma.gov/content/dam/ok/en/tax/documents/forms/individuals/past-year/2020/511-NR-NOL-201...

I had a net loss for 2021. It was for a rental property. However, in the OK Nonresident tax packet, on page 6 it says: "NET OPERATING LOSS
The loss year return must be filed to establish the Oklahoma Net Operating Loss.
Use the 511-NR-NOL schedules."

Here is my research for why "OK Form 511-NR" and "OK Form 511-NR-NOL" must both be filed:

a) I confirmed with a friend who is a tax CPA in California, that if I have a net loss in OK, I do need to file taxes in OK in order to establish the loss so I can carry it forward in future years.  b) Also, I called the Oklahoma Tax Commission [phone number removed]), and asked a rep if I had to use 1) OK Form 511-NR AND/OR 2) Form 511-NR-NOL to establish a net loss carryover. She said to use both.  3) I also got an email back from the OK Tax Commission, from a different rep, saying I had to use both forms.  (The web form to email them is here: https://oklahoma.gov/tax/contact/general.html)    So I have concluded I need to use both. 

I believe that you likely need to use Form 511-NR-NOL  to establish your net loss for 2021, even if it is not for a real estate rental property. After all, it says in the OK Nonresident tax package on page 6 "NET OPERATING LOSS: The loss year return must be filed to establish the Oklahoma Net Operating Loss.
Use the 511-NR-NOL schedules."  This statement does not seem to differentiate b/w residential rental property losses and other rental property losses, such as yours.  

Also, please note, this info may not apply to LLCs. Please check with your own tax accountant or CPA.

Also, be aware that Turbotax Home and Business does NOT generate Form 511-NR-NOL. The form looks long, but otherwise it looks easy enough to fill out oneself. (That is what I am doing.) Or maybe you can ask/hire tax accountant to fill this form out for you.

Note1: I do a lot of research, but please do not consider this as tax advice. I am not a licensed tax CPA. Please consult with your own tax CPA for tax advice.

Note2: If you found this post helpful or informative, please give it a thumbs up!

[swingdancer777]

Btw, I saw that the phone number for the Oklahoma Tax Commission was removed. But a simple google search for "Oklahoma tax commission phone number" should bring it up. And the rep was actually helpful!

[sidekickin]

@swingdancer777 Thank you so much for that detailed information! Unfortunately, I was under the impression that I did not have to file since I did not owe anything. But I do have a loss that needs to be carried forward to future years. I tried contacting the Oklahoma Tax Commission about this and they were not helpful. They simply told me to contact a CPA. I got frustrated with the whole thing and did not file since I didn't owe anything, and the packet said I only need to file if the "net rents" were more than $1,000. Now I'm not sure what to do. It's past the filing deadline and I have a $60,000 loss that needs to be carried forward to future years. Am I going to pay a penalty if I file now, even though I don't owe anything?

[SundayInSalem]

@sidekickin There is no penalty for late filing if you owe no tax.

You will have to carry back your net operating loss because you did not timely file your Oklahoma return.

Oklahoma says:

An election may be made to forego the carryback period. A written statement of the election must be part of the original timely filed Oklahoma loss year return. However, if you filed your return on time without making the election, you may still make the election on an amended return filed within six months of the due date of the original return (excluding extensions). Attach the election to the amended return. Once made, the election is irrevocable.

2021 Form 511-NR Oklahoma Individual Income Form for Nonresidents and Part-Year Residents Packet & I...

[sidekickin]

@SundayInSalem 2021 was the first year of this investment in Oklahoma. There's no previous years of any Oklahoma income to carry back the loss to. Also, this is simply a passive investment and not a business. There's no "operating" loss since I am not operating a business. I was under the impression that carrybacks only applied to business income. Am I incorrect in this thinking?

[swingdancer777 · Accepted solution]

@sidekickin Again I am not a CPA, but this is my understanding:

1. 2021 was the first year of your investment in Oklahoma. So yes, there are no years before 2021 to carry the loss back to. BUT if you plan to earn money from this investment in 2022, then you need to file a tax return to the State of OK to tell them you had a loss in 2021. That way, you will have the record of the loss in 2021 so that you can use your loss to carry it forward to 2022 and reduce your 2022 income. Ex: In 2021, you had a net loss of -$1000. In 2022, let's say you earned $5000. If you told OK in 2021 that you had the net loss of -$1000 in 2021, then you can carry it _forward_ and subtract that from your income in 2022. So then $5000 - $1000 = $4000. Then you are only taxed on $4000 in 2022.  If you don't file the -$1000 loss with OK in 2021, you can't tell them on your 2022 taxes, "Btw, I had a $1000 loss in 2021. I want to subtract that from my $5000 income in 2022." It would be too late then.

2. You may not be actively involved in your investment in OK. BUT if you are engaging in activity to make money, the State of OK (and the federal govt) consider that to be a "business" that you have. So for my example, I own a rent house in OK. For me, this is also a passive investment b/c I have a property manager who is actively involved in managing the property. And I do not spend enough time as defined by the IRS actively managing my investment. (The rule is something like if I spent more than 50% of my work time, including my job, managing my property in OK and elsewhere, and I meet some other IRS-defined tests, then I could be considered "actively involved" in a property management business. Use Google to learn more if you want.)

So back to my example. I just have a rental property as an investment. I do not spend enough hours or enough work to for the IRS to consider me to be "actively involved", so it a passive investment for me. BUT I still will make money from this passive investment in 2022. I hope to have a profit.  And since I filed in 2021 my operating loss (let's say it was -$1000), then when I file taxes in 2022, I can subtract this -$1000 from my income in 2022. Let's say it is $10,000 income/profit in 2022 (just to illustrate). Then when I file my taxes in 2022, I can take $10,000 - $1000 (loss from 2021) = $9000. So then I am only taxed on $9000 instead of $10,000. So even though I only have an investment and it is passive, in 2021, the -$1000 is still called an "operating loss" b/c this is a business, even though the IRS does not consider me to be actively involved in it. I hope that makes sense. And check with your own CPA on this. Good luck.

[sidekickin]

@swingdancer777 

Thank you so much for that detailed reply. I cannot thank you enough for taking the time to explain it. That clears everything up for me. I will go ahead and file the nonresident OK tax return showing the loss so I can carry it forward.

[swingdancer7771]

@sidekickinI just found that I think what I said about the Net Operating Loss for Oklahoma is wrong. Sorry about that. As a result, you may want to revisit your Oklahoma taxes with a competent tax professional or CPA if you choose to amend your OK tax for 2021. (I have also shared what I learned below, but again, I am not a tax professional or CPA, so I recommend you speak to a CPA about your own situation.)

I just called H&R Block in Oklahoma. I spoke to a tax preparer there. She said that an individual may have a "Net Operating Loss" if on their Federal taxes, Form 1040, the Line 15 (Taxable Income) is zero.  In other words, a "Net Operating Loss" occurs if ALL your net income sources (including wages and salary from a job, interest income, dividend income, income from a Sched C business or rental property, if you have these, and other income sources) minus your deductions (Standard deduction or Itemized deductions, depending on which deduction you chose to take) is a negative number.

This is stated on the IRS website, under "

Publication 536 (2021), Net Operating Losses (NOLs) for Individuals, Estates, and Trusts":

NOL Steps "Step 1. Complete your tax return for the year. You may have an NOL if a negative amount appears in these cases.

Individuals—You subtract your standard deduction or itemized deductions from your adjusted gross income (AGI)."

 (Link: https://www.irs.gov/publications/p536)

The HR Block tax preparer told me, yes, I did have an operating loss on my real estate property (which I listed on Schedule E). But since the loss was NOT greater than all of my other income (from my salary and dividend income), then I do NOT have an overall Net Operating Loss.  The IRS website listed above also said "A loss from operating a business is the most common reason for an NOL." The HR Block tax preparer said that also: if I had my own business, and that were my only income, and it had overall negative income for the year, that would most likely result in a Net Operating Loss.

The OK HR Block tax preparer also said, since I do not have positive net income (we are talking "rent revenue minus expenses", not just just "rent revenue") from my rental property for 2021 (I still have a loss for  income generated in Oklahoma, but not an overall loss on my Federal income), I do NOT need to file taxes for Oklahoma in 2021. I am still checking this, but I think that is what may end up happening. (I believe I have until Oct 15, 2022 to file Oklahoma taxes if I need to b/c I believe OK follows the federal tax extension deadline, which is usually Oct 15. So you may have until Oct 15, 2022 to amend your OK taxes, but you should verify that deadline with a CPA.)

The OK HR Block tax preparer also said, since I do not have a Net Operating Loss (NOL), then I do not have any NOL to carry forward to the future. She told me that the loss I do have (let's say it is -$1000 as an example), I CANNOT carry forward on my Oklahoma state taxes into the future. I just lose it. That's a small bummer, but at least I don't get taxed on it. And again, you should check with a CPA on this. (If you have $60k in losses, as I think you said you did, it is worthwhile to spend a few hundred dollars to get the correct advice from a professional on your 2021 taxes. And if you truly understand their logic, you could do your 2022 taxes yourself and not hire a CPA again.) Good luck!

 

[swingdancer7771]

@sidekickinThere is also a fairly clear and easy 3 step test to see if you have a Net Operating Loss for Oklahoma.  Do a google search for "OK_FORM_511NR-NOL.pdf" or "Supplement to Form 511NR". This is a form from the State of Oklahoma. On page 2 of "Supplement to Form 511NR, Oklahoma Net Operating Loss(es), Nonresident/Part-Year Residents Only - Page 2", calculate lines 1, 2, and 3. The instructions say, "If line 3 is zero or more, do not complete remainder of schedule. There is no net operating loss."

Hope that helps. And as always, please check wit your own CPA.

[sidekickin]

@swingdancer7771 Thank you so much for the detailed information!  I went ahead and filed the Oklahoma return in July showing the NOL.  I followed up with the Oklahoma Tax Commission a few weeks ago to confirm that it was received and processed.  The lady I spoke to confirmed that it was processed and that everything was correct.  She said the $60,000 NOL will carry forward to next year.  She said it was a good thing that I decided to file (even though it was late) because I wouldn't have been able to claim the $60,000 NOL next year.  There was no penalty for late filing since no tax was due.

Thanks again for taking the time to follow up on this.  Perhaps my situation will be helpful in your situation.

[harlan]

Does anyone have an opinion on this NOL in OK?  Unless the OP has an federal net income less than the $60K loss in OK (OP doesn't clarify in the final post,) there is a direct conflict on these two conclusions.  The person who talked to HR Block says the NOL cannot be taken unless the NOL is greater than all other income regardless if OK sourced or not.   I have a similar situation as a non resident with a rental investment in OK.  I have passive losses but they are not greater than my total income.  I *think* the HR Block advice is correct based on the related OK forms I have seen regarding the NOL.  However, it would be great to get another opinion.

Also, if the HR Block person is correct on the NOL aspect I am also wondering if the part about not having to file a return in OK unless there is a year with taxable OK income.  It would make sense if these losses cannot be carried forward that OK would not care if you filed a return up until the point where there is taxable OK income--then of course they want their money and a return would have to be filed.

[AmyC]

When you look at TY22 filing requirements OK state, scroll down a little you can determine if you need to file an OK return. The question is:

If you don’t live in Oklahoma: Does your gross income generated from Oklahoma meet or exceed $1,000?

The key word here is gross. If your rental income in OK is $1,000 or more, you need to file a return. Your net may be a loss, you will still file due to the gross amount.

@harlan