Do you have to file a tax return in the state of your vacation rental if you own a vacation rental in another state?

[cbusa]

If you own a vacation rental in another state, do you have to file a tax return in the both your primary state and the state your vacation rental is located in? Do you split via amount attributed to the rental property?

[Anonymous_ · Accepted solution]

Which state?

States that levy an income tax typically require anyone with income sourced in that state to file a return and potentially pay state tax on income that exceeds a certain threshold.

Further, if your resident state levies an income tax, then that state can levy a tax on taxable income earned anywhere, although it may allow a credit for tax paid to another state.

[cbusa]

Thanks Illinois, vacation rental in Indiana

[Anonymous_]

See https://forms.in.gov/Download.aspx?id=15132

You have Indiana-source income.

See https://www2.illinois.gov/rev/forms/incometax/Documents/currentyear/individual/il-1040-schedule-cr-i...

You should be able to take a credit for any income tax paid to the State of Indiana.

[NCperson]

@cbusa - you would have to file in both states

1) in Indiana as a non-resident listing only the Indiana sourced income

2) in Illinois as a resident, include the Indiana sourced income.  

3) The Illinois tax return will create a credit for the tax paid to Illinois so that you are not paying state income tax on the same dollar in both states.

4) While Turbo Tax will handle this seamlessly, it's best to be sure your Indiana return is 'locked down' so you are confident the credit is appropriately transfered to the Illinois return. 

[TomD8]

Correcting a typo in @NCperson 's answer:

"The Illinois tax return will create a credit for the tax paid to Illinois"

The Illinois tax return will create a credit for the tax paid to Indiana.