Rental property in multiple states

[qofmiwok]

I believe this is correct, just want to make sure.

LLC owns 3 properties in 3 states.  2 states had positive income, 1 state had negative income, bringing the total income for the LLC negative.

State of GA wants $5000 tax on the rental income in their state.

State of NC wants $8000 tax on the rental income in their state.

State of MI is negative.

My overall income on 1040 is also negative, so I get no state tax credit from the state I live in for the amounts paid to other states.

So I basically have to pay $13,000 state income tax when I made zero income for the year.

I believe this is correct, right?   It's just so wrong.

[Anonymous_ · Accepted solution]

Yes, probably because these are nonresident states and you are not getting a credit from the state in which you reside (which you should investigate unless you reside in a state that does not tax individual income).

Regardless, you should be able to deduct the state tax paid from the rental income (as an expense) on your federal income tax return.

[This presumes the LLC is aingle-member LLC without an election to be treated as a corporation]

[Mike9241]

we can't see your returns or data so the following is just an estimate

for $5K in Ga taxes it would seem taxable income would need to be about $90K

For $8K in NC taxes taxable income would need to be about $150K

you do have the option to upgrade to Turbotax live or use an outside tax pro to review your returns. 

[Hal_Al]

Are you filing the LLC income on your individual return (pass thru income ) or on a business return (partnership, S corp, C corp)?

On individual state return  you usually only pay tax on the state  portion (ratio) of your total income ($0 in your case).  It works this way in most states.  I'm not specifically familiar with NC & GA, but a quick review of the NC form shows NC uses that method. So, your NC tax is 0.  I suspect GA is the similar.

It sounds like you may need a tax professional.

[qofmiwok]

Well I oversimplified a little.  It's actually a 2 person LLC taxed as partnership that the income splits between.

Which requires composite returns in those states.  NC does allow you to claim some of it back by filing individual returns but as best as I can tell, GA does not.

[qofmiwok]

Unfortunately for partnerships they require you to file a composite return based solely on the income you earned there, regardless your the overall partnership income or income of the individual partners.  NC allows the partners to file individual taxes to claim some of that back as a refund.  But they disallow a lot of deductions so you don't get it all back.

Georgia does not allow the partners filing an individual return to claim a credit for the composite payment.  However I did find that it seems possible to skip the composite return if you do partner withholding instead.  I tried that this time, even though I probably will have a penalty for not actually doing the withholding.