South Carolina resident, with California rental property

[Helpneeded12]

Hello! I’m a South Carolina resident with a home in California. We moved in 2022 and rented out our home. I think rental income on our home will be about $15,000. However, my other income from my job is $100,000.

I know I will need to file a South Carolina state tax filing as I’m a resident here. 

Will I need to file a California tax return?

And if so, will I be taxed by California at a tax rate that assumes my total taxable income will be $15,000 or on $115,000?

Thank you! 

[Anonymous_]

You have California source income in the form of rental income from real estate located in that state. As a result, you will have to file a California income tax return, in all likelihood.

See https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html#Do-I-need-to-fi...

However, as a nonresident, you will only be subject to California income tax on the amount of your California source (rental) income and not the income from your job in South Carolina.

[NCperson]

@Helpneeded12 

you will file a non-resident CA tax return and report your CA income only.  

then you will file a SC tax return, listing ALL income.  the SC form will give you a credit for the tax paid to CA. 

be sure to complete the CA return prior to completing the SC return, 

TT will handle this easily. 

[Helpneeded12]

Thank you both! One question is what will my California tax rate be? Will is be the rate for someone who makes $115,000 or someone who makes only $15,000?

[DoninGA]

@Helpneeded12 Your tax rate is determined by your filing status and the taxable income after adjustments (if any) that you reported on the tax return.

[Helpneeded12]

Sorry but I’m still confused. Does it mean that I’ll be taxed at a very small rate (I.e. if California assumes I only make $15,000) or at a much higher rate (I.e. if California assumes I make $115,000)? 

[DoninGA]

Only your CA income is being reported on the CA return.  California has no need to know what other income you received since you are not a resident of CA.

Your tax rate on the CA return can only be based on the $15,000 you report on the CA nonresident state tax return.

[NCperson]

@Helpneeded12 - CA will tax you on ONLY $15,000 of income.

Then, SC will tax you on all the income ($115,000) and then give you a credit for the lesser of: 

a) what you paid CA

b) what the tax difference would have been if you deleted that $15,000 from the SC form. 

I suspect b) is what will occur since the SC tax rates are lower than the CA tax rates.  In essence, SC calculates the SC tax on the $15,000 and gives you a credit. it is not going to give you a credit for the higher tax rates in CA.

Turbo Tax will figure this out seamlessly.  

[Helpneeded12]

Got it. Thank you! 

I think if I need to make repairs to the property, I can note those as costs and decrease the taxable income. Is this something that I should consider? 

[Anonymous_]

@Helpneeded12 

If this is strictly rental property, you can deduct all of your rental expenses, including repairs, utilities, taxes, insurance, depreciation, etc.

[Critter-3]

Read up on the Sch E  and you MUST depreciate the property ... it is not optional. 

About Publication 527, Residential Rental Property (Including Rental of Vacation Homes) | Internal R...

[Opus 17]

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@Helpneeded12 wrote:

Thank you both! One question is what will my California tax rate be? Will is be the rate for someone who makes $115,000 or someone who makes only $15,000?

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You're going to have to check the CA instructions for non-residents (or maybe one of the experts here has done CA non-resident returns) to know for sure.

If you were filing a New York non-resident return, New York would determine the percentage rate based on your total taxable income, but only the NY source income is taxed at that rate.  I haven't done a CA non-resident return so I can't tell you how they do it.  Also note that non-residents are often subject to different rules regarding standard deductions and so on.

Lastly, I want to comment that you will be required to manually allocate your income to each state, Turbotax can't guess for you.  In your case, that would mean assigning 100% of the CA rental to CA, and then assigning zero percent of wages, interest, dividends, and other types of income to CA. 

[Opus 17]

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@Helpneeded12 wrote:

Got it. Thank you! 

I think if I need to make repairs to the property, I can note those as costs and decrease the taxable income. Is this something that I should consider? 

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You should be taking advantage of every expense deduction you can find.  Repairs for sure.  Depreciation is also required (and you will be taxed to recover the depreciation when you sell the property even if you didn't take it, so take it.). Do you pay for utilities? Do you maintain separate property insurance (fire, earthquake, flood, liability) that is separate from your tenants' insurance on contents?  If not, you should have insurance, and that is a deductible expense too.  Property taxes are deductible rental expenses on schedule E instead of as itemized personal deductions on schedule A.  Does the property have a mortgage?  Do you pay a property maintenance company to keep an eye on things?

[TomD8]

California will tax only your CA-source income, but your total gross income will be part of its calculation of your tax rate.

See "Tax Computation Method" in this CA tax publication:

https://www.ftb.ca.gov/forms/misc/1100.html

[Critter-3]

FYI ... you should file a CA return each and every tax year even if the return shows a loss which is common with a rental property due to the depreciation that MUST be taken.  By filing the CA return it not only helps your residence state return but preserves any unused loss for the future.