Rental Property Carry-Over Losses on Federal Return Not Being Applied to State Return

[dnw5024]

I live in PA but own a rental property in AL. Last year, the rental property resulted in a net loss. This year, the property was profitable, but the carry-over losses applied from the previous year resulted in a net-zero profit/loss. TurboTax handled that fine for both Federal and Alabama (resulting in zero taxes owed for the property), but the PA return is still charging tax on the profit from this year and not incorporating the carry-over loss. Any help on the matter would be greatly appreciated.

[ErnieS0]

Pennsylvania does not follow federal carryforward loss rules. The 2019 net loss would have been reported on your 2019 PA income tax return, even if it was suspended for federal purposes.

In addition, PA does not allow losses from one type to income to be applied against a different type of income. In other words, if you had no other income from the operation of a business, profession or farm, then you would not have been able to deduct the real estate loss on your 2109 PA return.

PA says. "For personal income tax purposes, a gain in one class of taxable income cannot be offset against a loss in any other class of taxable income, nor may gains or losses be carried back or forward to another tax year."

Related Resource:

• Can a loss reported on a PA-40 last year in which there was no tax benefit, be used to offset a gain...

[dnw5024]

Does it matter that I was not a PA resident the previous year (when the loss on the rental property occurred)? I was a resident of MD the previous year and so I did not file a 2019 PA return.  Should my question then have been, "I have carry-over losses in a state I no longer reside in, am I able to get the benefit of those losses after moving, or are they now gone forever at the state level?" (Assuming MD allows for carry-over losses)

[ErnieS0]

No. Pennsylvania will not give you a credit for a loss reported on your 2019 Maryland income tax return.

Additionally, PA has not carry forward or carry back provisions. Gains and losses are reported in the year they occurred.