Rental income of $0 reporting for Part Year resident in 2nd and 3rd states.

[grendoly]

I have a rental property in CT with a net income this year of $0 as figured on the Federal form.

I lived in MA for about 5 months then moved to NC, and am completing MA and NC returns. At no point this year did I live in CT.

To start, MA tax form asks "Should this activity be excluded from the MA return?" (referring to this rental property).

How should I proceed to report this rental condo and its expenses and consistent depreciation? Do I prorate it all and report the relevant amount on each? Do I just report in in one or the other state?

Any guidance would be great!

[ColeenD3]

It is potentially taxable income to each state. I am assuming you had zero income due to expenses. You would need to prorate between MA and NC by the amount of time spent in each state as a part-year resident. The gross income may not be sufficient to have to file state returns since it is not for the entire year.

[grendoly]

Hi Coleen,

Thanks. Yes, it is zero income due to expenses/depreciation.

Three questions based off your reply:

1) If we prorate the rental by time spent in each state, do we apply the prorating to ALL line items on the Schedule E? e.g. do we also prorate the depreciation?

2) How in TurboTax can we split a rental property, since the state returns just ask if X property should be excluded from that return? Do we need to create two Schedule Es at the federal level, one for the MA portion of the year and one for the NC portion? How will splitting the property impact the federal return - I anticipate all the income will still get cancelled by the prorated expenses and depreciation, but are there any other impacts?

3) You said "The gross income may not be sufficient to have to file state returns since it is not for the entire year." - what level of gross rental income would mean that we don't need to file state returns in NC and MA? The gross rental income before expenses etc. was only ~$12600 for the whole year - prorated it would be less than $7000 in each state.

Thanks for any help you can offer!

[DianeW777]

No. You will prorate the net income/loss (rents less expenses) for each state based on the months of residency.

No.  Do not create more than one rental in the federal section of your return. Each part year resident state should allow you to enter the amount taxable for their state as you go through the screens.

North Carolina Filing Requirement: Part-year resident of North Carolina during tax year 2021 and you received income while a resident of North Carolina, or you received income while a nonresident that was 

1. attributable to the ownership of any interest in real or tangible personal property in North Carolina, 
2. derived from a business, trade, profession, or occupation carried on in North Carolina, or 
3. derived from gambling activities in North Carolina, and your total gross income for 2021 exceeds the amount shown in the Filing Requirements Chart for your filing status, you must file a 2021 North Carolina individual income tax return, Form D-400.  
   • You were a part-year resident of North Carolina if you moved to North Carolina and became a resident of North Carolina during the tax year, or you moved out of North Carolina and became a resident of another state during the tax year.

Massachusetts Filing Requirements: Part-year residents

If you're a part-year resident with an annual Massachusetts gross income of more than $8,000, you must file a Massachusetts tax return.

You are an individual part-year resident if you:

• Move to Massachusetts during the tax year and become a resident; or
• Move out of Massachusetts during the tax year and end your status as a resident.

Part-year residents use Form 1-NR/PY: Massachusetts Nonresident/Part-Year Tax Return.

[grendoly]

Thanks Diane!

TT for MA at least unfortunately does not seem to ask what amount of the rental net income and loss is due to MA vs another state. It just asks if I wish to exclude the rental from my MA return - if I include it, it adds a Schedule E1 to MA with the full-year numbers. Does TT prorate it by itself based on my percent of year in the state, or do I need to manually prorate the numbers in the Schedule E1 that is created? Since the net income/loss is zero, I'm not sure how to tell if it's doing it accurately, since I won't see where TT might apportion it between states on its own.

[RobertB4444]

If the rental is a net zero and not a net loss then the tax treatment doesn't matter.  Leave it off.  If it is a net loss then you will have to adjust the amounts for the return.