State taxes and out of state rental property

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
White Coat Investor
Posts: 17410
Joined: Fri Mar 02, 2007 8:11 pm
Location: Greatest Snow On Earth

State taxes and out of state rental property

Post by White Coat Investor »

Do I really have to fill out a non-resident state income tax return if I have a rental property in another state?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: State taxes and out of state rental property

Post by grabiner »

EmergDoc wrote:Do I really have to fill out a non-resident state income tax return if I have a rental property in another state?
Check with the state, but the answer in most states is yes: you have to pay state tax if you have any income with a source in the state. Income from intangible assets has a source in your home state; you do not pay PA or DE tax on a Vanguard mutual fund even though Vanguard is located in PA and the fund may be a DE corporation. Income from tangible assets has a source where the assets are located, and income from work has a source where the work was done (with some state exceptions; for example, several states consider work from home to have a source at your regular employment location).

You may also not owe tax if you have a net loss on the property, but you may still need to file a tax form to prove that you have a net loss.
Wiki David Grabiner
donall
Posts: 1079
Joined: Tue Mar 13, 2012 6:45 am

Re: State taxes and out of state rental property

Post by donall »

Taken from
https://turbotax.intuit.com/tax-tools/t ... 12057.html

Consideration 3: Renting property in the state you leave
Even if you establish permanent residency in the new state, if you rent out your house in your old state, you will most likely have to file an income tax return in your old state to report your income and expenses.

If you make a net profit renting your house, you will most likely have to report your rental income and expenses on both your old state and your new state income tax returns. However, your new state will most likely allow you a credit for the taxes you pay to your old state because of the rental property income.

Even if you have a loss on the rental and might not have to file a return in your old state, consider filing a return anyway so that you can establish with your old state that the rental property produced a taxable loss. This might come in handy if you want to carry that loss over to offset some rental income taxable by your old state in the future.
User avatar
Topic Author
White Coat Investor
Posts: 17410
Joined: Fri Mar 02, 2007 8:11 pm
Location: Greatest Snow On Earth

Re: State taxes and out of state rental property

Post by White Coat Investor »

That's what I was afraid of. What a pain. What if you own stock in a corporation headquartered in another state? How is that any different than a rental property? Filing the return will cost me a significant percentage of what the tax is anyway.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
ryman554
Posts: 1635
Joined: Sun Jan 12, 2014 8:44 pm

Re: State taxes and out of state rental property

Post by ryman554 »

EmergDoc wrote:That's what I was afraid of. What a pain. What if you own stock in a corporation headquartered in another state? How is that any different than a rental property? Filing the return will cost me a significant percentage of what the tax is anyway.
Stock is intangible. Like a mutual fund. Home state. Doesn't matter where it's headquartered nor where you bought it from.

But get this -- exercising options is income attributable to the state you were in when the options were granted, not exercised. So, if you leave a job and move to another state for another job, and then exercise the options... don't forget about that.
manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: State taxes and out of state rental property

Post by manwithnoname »

EmergDoc wrote:Do I really have to fill out a non-resident state income tax return if I have a rental property in another state?
Need to review state tax website to see if you have to file a tax return. Most states excuse taxpayers whose income is below a certain amount from filing a tax return. That's how most non residents who have income from intangible assets such as taxable MLP income derived from pipelines that cross state borders avoid filing a non resident tax return.
manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: State taxes and out of state rental property

Post by manwithnoname »

ryman554 wrote:
EmergDoc wrote:That's what I was afraid of. What a pain. What if you own stock in a corporation headquartered in another state? How is that any different than a rental property? Filing the return will cost me a significant percentage of what the tax is anyway.
Stock is intangible. Like a mutual fund. Home state. Doesn't matter where it's headquartered nor where you bought it from.

But get this -- exercising options is income attributable to the state you were in when the options were granted, not exercised. So, if you leave a job and move to another state for another job, and then exercise the options... don't forget about that.
[OT comments removed by admin LadyGeek]
jebmke
Posts: 25475
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: State taxes and out of state rental property

Post by jebmke »

ryman554 wrote:But get this -- exercising options is income attributable to the state you were in when the options were granted, not exercised. So, if you leave a job and move to another state for another job, and then exercise the options... don't forget about that.
This may vary by state. I was granted options while a resident of Wisconsin. Shortly thereafter, I relocated out of the state. My original W2 when the options were exercised years later was listed as WI but I successfully argued that all the increase in value occurred when I worked outside of Wisconsin. I received a corrected W2 with a different state (the state where I lived when I exercised).
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
earlyout
Posts: 1542
Joined: Tue Feb 20, 2007 4:24 pm

Re: State taxes and out of state rental property

Post by earlyout »

manwithnoname wrote:
EmergDoc wrote:Do I really have to fill out a non-resident state income tax return if I have a rental property in another state?
Need to review state tax website to see if you have to file a tax return. Most states excuse taxpayers whose income is below a certain amount from filing a tax return. That's how most non residents who have income from intangible assets such as taxable MLP income derived from pipelines that cross state borders avoid filing a non resident tax return.
However, some states now require the MLP to withhold state income tax on this income and you are forced to file a state return to get a refund of the money withheld. Another reason not to invest in MLPs.
pshonore
Posts: 8212
Joined: Sun Jun 28, 2009 2:21 pm

Re: State taxes and out of state rental property

Post by pshonore »

Which MLPs would those be? Probably 90% of MLPs have negative income in the states where they operate.
jared
Posts: 554
Joined: Sun Jul 06, 2008 11:57 pm

Re: State taxes and out of state rental property

Post by jared »

manwithnoname wrote:
EmergDoc wrote:Do I really have to fill out a non-resident state income tax return if I have a rental property in another state?
Need to review state tax website to see if you have to file a tax return. Most states excuse taxpayers whose income is below a certain amount from filing a tax return. That's how most non residents who have income from intangible assets such as taxable MLP income derived from pipelines that cross state borders avoid filing a non resident tax return.
Also, keep in mind the requirement for some states is based on gross income (rental income before any expenses). Even if the net income (or loss) from your rental property is less than the state threshold, you might still be required to file a return.
manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: State taxes and out of state rental property

Post by manwithnoname »

pshonore wrote:Which MLPs would those be? Probably 90% of MLPs have negative income in the states where they operate.
This is true but occasionally an MLP generates taxable income from property sales. I have had about 3% of total income from an MLP over the years reported as taxable property transactions.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: State taxes and out of state rental property

Post by sscritic »

As others have mentioned state taxes are set by the state doing the taxing. There is no single "state tax." I don't understand why people ask questions about state tax without naming the state. If the state had been named, I am sure someone would have read the instructions for that particular state for you, not that you shouldn't be able to read them for yourself.
earlyout
Posts: 1542
Joined: Tue Feb 20, 2007 4:24 pm

Re: State taxes and out of state rental property

Post by earlyout »

pshonore wrote:Which MLPs would those be? Probably 90% of MLPs have negative income in the states where they operate.
A real estate MLP that I was sold by a "financial advisor" 15 years ago has properties in Colorado and in Wisconsin. Both states require the MLP to withold state income tax. Fortunately it was not a large investment.
jebmke
Posts: 25475
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: State taxes and out of state rental property

Post by jebmke »

sscritic wrote:As others have mentioned state taxes are set by the state doing the taxing. There is no single "state tax." I don't understand why people ask questions about state tax without naming the state. If the state had been named, I am sure someone would have read the instructions for that particular state for you, not that you shouldn't be able to read them for yourself.
+1

State taxes are notorious for little weird exceptions and nuances. If you don't research via instructions or other training you are asking for trouble. For example, in MD you must use the same filing status as your Federal return. In Delaware, you don't have to. I live in MD near the DE border and I see taxpayers with mixed income (multi-state). Sometimes it pays to file MFS in DE even though you file MFJ on Fed and MD return. The only way you'd know this is to read the instructions and test different statuses in the DE return.

I don't let any of my preparers do any state for which they haven't trained and certified. It is tempting to just pull up the forms and fill in blanks until the diagnostics stop but that can lead to a bad result.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
andrewj61
Posts: 1
Joined: Sat Mar 22, 2014 10:12 am

Re: State taxes and out of state rental property

Post by andrewj61 »

ryman554 wrote:
EmergDoc wrote:That's what I was afraid of. What a pain. What if you own stock in a corporation headquartered in another state? How is that any different than a rental property? Filing the return will cost me a significant percentage of what the tax is anyway.
Stock is intangible. Like a mutual fund. Home state. Doesn't matter where it's headquartered nor where you bought it from.

But get this -- exercising options is income attributable to the state you were in when the options were granted, not exercised. So, if you leave a job and move to another state for another job, and then exercise the options... don't forget about that.
It's not because stock is intangible, you can buy "stock" (limited partnership units) in Ceder Fair, L.P. on the stock exchange and still have to file state tax returns for OH. The reason you don't have file state tax returns with most stock you purchase on the stock exchange is because they are regular or C type corporations (although I don't think C-Corporation is actually defined in the tax code). C-corporations do all their own state tax returns and pay the taxes for you. A rental property (even one in an LLC) is generally a pass through investment, so you are similar to the corporation in the aspect that you have to allocate your income to the jurisdictions to which you earned it and file the state tax return. You could technically not have to file a personal state tax return for your rental property if you put it into your own REIT. That would be very costly.

Ceder Fair, L.P. is an MLP. Most MLPs are structured as limited partnership and do not pay state taxes, they file informational returns to tell the government what state tax YOU should pay. They are required to withhold state taxes on behalf of their share owners similar to how your employer withholds taxes from you, just in case you don't file a return, the government still gets paid. The MLP's withholding may or may not be correct. You can file a state tax return in the state the MLP withheld to get money back or pay additional tax. The MLP's withholding was just an estimate similar to your payroll withholding.

I used to work for a family that owned over 70 strip malls across the country. Each individual had to file a separate tax return for each shopping center (because they where each a separate entity) in each state. Hope that makes you feel better.

To the point of intangibles, there is a interesting tax case regarding Geoffrey the giraffe and Toy-R-Us. Toys-R-Us tried to make Geoffrey and intangible asset and have all the stores pay royalties to the entity that owned Geoffrey. The company that owned Geoffrey was a Delaware based company also owned by them. Delaware had not tax on this intangible (I believe) so they essentially tried to extract profits from the states where the stores were located and move those profits to the state the intangible was located (where it would not be taxable). I believe the strategy did not work, but its an interesting read to learn about interstate taxation.
travellight
Posts: 2892
Joined: Tue Aug 12, 2008 5:52 pm
Location: San Diego

Re: State taxes and out of state rental property

Post by travellight »

I am mostly in CA but have rental property in Utah. I file state tax in Utah for the rental income. Last year, I paid about $400-500. I don't think filing the tax costs that much.
364
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: State taxes and out of state rental property

Post by sscritic »

jebmke wrote:State taxes are notorious for little weird exceptions and nuances.
The one I am most familiar with is exempt income from a mutual fund, California style. None of the tax exempt income is tax exempt unless at least 50% of the assets (not income) are assets that produce exempt income. It is easy to see in the instructions, but I would bet many skip over it.
If the mutual fund has at least 50% of its assets invested in tax-exempt U.S. obligations and/or in California or its municipal obligations, that amount of dividend is exempt from California tax.
so you include in income
The federally exempt interest dividends from other states, or their municipal obligations and/or from mutual funds that do not meet the 50% rule above.
User avatar
Topic Author
White Coat Investor
Posts: 17410
Joined: Fri Mar 02, 2007 8:11 pm
Location: Greatest Snow On Earth

Re: State taxes and out of state rental property

Post by White Coat Investor »

It's VA if anyone cares, but the tax due is almost exactly the same as what I was going to pay UT anyway for that income. The additional tax due in Virginia is about what it costs me to file a VA return via Turbotax.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: State taxes and out of state rental property

Post by sscritic »

Virginia uses a proportional system.
Nonresidents report their income in the same manner as residents, using Virginia Form 763. An allocation percentage, based on the ratio of Virginia source income to income from all sources, is then applied to arrive at the individual's net Virginia taxable income.
They don't care how little comes from Virginia.
Nonresidents of Virginia with income at or above the filing threshold must file if any of their income is from Virginia sources.
(threshold is $11,950, if your spouse is not a co-owner)

Does UT give you a credit for taxes paid to Virginia? (I am not going to look)
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: State taxes and out of state rental property

Post by grabiner »

manwithnoname wrote:
EmergDoc wrote:Do I really have to fill out a non-resident state income tax return if I have a rental property in another state?
Need to review state tax website to see if you have to file a tax return. Most states excuse taxpayers whose income is below a certain amount from filing a tax return. That's how most non residents who have income from intangible assets such as taxable MLP income derived from pipelines that cross state borders avoid filing a non resident tax return.
Most states exempt nonresidents based on total income; if you earned enough total income that you would have to file as a resident, and at least $1 in the state, then you have to file a state tax form. (The reason is that the non-resident tax is proportional; if you earn $100,000, and earn $100 in the state, then you compute the tax on an income $100,000, and pay 0.1% of that tax to the state.)
Some states have a separate threshold that taxpayers with less than X amount earned in the state need not file, and others do not prorate the personal exemptions or standard deductions, so that taxpayers with low in-state income may need to file but not owe any tax.
Wiki David Grabiner
dkturner
Posts: 1940
Joined: Sun Feb 25, 2007 6:58 pm

Re: State taxes and out of state rental property

Post by dkturner »

EmergDoc wrote:It's VA if anyone cares, but the tax due is almost exactly the same as what I was going to pay UT anyway for that income. The additional tax due in Virginia is about what it costs me to file a VA return via Turbotax.
You have to look at this issue from the perspective of the individual states. They want the tax revenue from rental income of real estate within their borders. The VA tax authorities can take no consolation from the fact that you may be paying an equal amount of tax to UT in lieu of paying it to VA.
travellight
Posts: 2892
Joined: Tue Aug 12, 2008 5:52 pm
Location: San Diego

Re: State taxes and out of state rental property

Post by travellight »

The VA tax authorities can take no consolation from the fact that you may be paying an equal amount of tax to UT in lieu of paying it to VA.
I don't think he has to double pay; that would be horrible. The income in VA is only declared on the VA tax form as far as I know.
364
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: State taxes and out of state rental property

Post by sscritic »

travellight wrote:
The VA tax authorities can take no consolation from the fact that you may be paying an equal amount of tax to UT in lieu of paying it to VA.
I don't think he has to double pay; that would be horrible. The income in VA is only declared on the VA tax form as far as I know.
Read again. Focus on "in lieu of."
SeattleCPA
Posts: 456
Joined: Fri Jul 06, 2012 7:06 pm

Re: State taxes and out of state rental property

Post by SeattleCPA »

EmergDoc wrote:Do I really have to fill out a non-resident state income tax return if I have a rental property in another state?
Partly you're filing the VA tax return to prove to VA that you don't owe them tax... and this is often an important protective step... (I''ve seen CA go after a client because he skipped a nonresident return with about $12 of income on it... And I've had a client or two from VA get into similar arguments with state revenue agents.)

furthermore, even if you don't owe any tax and want to skip paying Intuit, you may practically speaking need to do the return to correctly accumulate the passive suspended losses for the VA property.

I don't want to be snarky or rude, but it may be that investing in out of state real estate or out of state pass-though entities violates point #5 in your sig. :|
User avatar
Topic Author
White Coat Investor
Posts: 17410
Joined: Fri Mar 02, 2007 8:11 pm
Location: Greatest Snow On Earth

Re: State taxes and out of state rental property

Post by White Coat Investor »

SeattleCPA wrote:
EmergDoc wrote:Do I really have to fill out a non-resident state income tax return if I have a rental property in another state?
Partly you're filing the VA tax return to prove to VA that you don't owe them tax... and this is often an important protective step... (I''ve seen CA go after a client because he skipped a nonresident return with about $12 of income on it... And I've had a client or two from VA get into similar arguments with state revenue agents.)

furthermore, even if you don't owe any tax and want to skip paying Intuit, you may practically speaking need to do the return to correctly accumulate the passive suspended losses for the VA property.

I don't want to be snarky or rude, but it may be that investing in out of state real estate or out of state pass-though entities violates point #5 in your sig. :|
I'd love to get rid of the property, but it doesn't make sense to.

I ended up paying Turbotax $45 in order to pay VA $18.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
travellight
Posts: 2892
Joined: Tue Aug 12, 2008 5:52 pm
Location: San Diego

Re: State taxes and out of state rental property

Post by travellight »

White Coat Investor wrote: Sat Apr 05, 2014 10:43 pm
SeattleCPA wrote:
EmergDoc wrote:Do I really have to fill out a non-resident state income tax return if I have a rental property in another state?
Partly you're filing the VA tax return to prove to VA that you don't owe them tax... and this is often an important protective step... (I''ve seen CA go after a client because he skipped a nonresident return with about $12 of income on it... And I've had a client or two from VA get into similar arguments with state revenue agents.)

furthermore, even if you don't owe any tax and want to skip paying Intuit, you may practically speaking need to do the return to correctly accumulate the passive suspended losses for the VA property.

I don't want to be snarky or rude, but it may be that investing in out of state real estate or out of state pass-though entities violates point #5 in your sig. :|
I'd love to get rid of the property, but it doesn't make sense to.

I ended up paying Turbotax $45 in order to pay VA $18.
What did you end up doing about this, WCI? I am facing the same issue... I have rentals in Utah with net zero income and hate to spend $55 with taxact unnecessarily. Thanks in advance.
364
User avatar
Topic Author
White Coat Investor
Posts: 17410
Joined: Fri Mar 02, 2007 8:11 pm
Location: Greatest Snow On Earth

Re: State taxes and out of state rental property

Post by White Coat Investor »

travellight wrote: Thu Mar 11, 2021 1:34 pm
White Coat Investor wrote: Sat Apr 05, 2014 10:43 pm
SeattleCPA wrote:
EmergDoc wrote:Do I really have to fill out a non-resident state income tax return if I have a rental property in another state?
Partly you're filing the VA tax return to prove to VA that you don't owe them tax... and this is often an important protective step... (I''ve seen CA go after a client because he skipped a nonresident return with about $12 of income on it... And I've had a client or two from VA get into similar arguments with state revenue agents.)

furthermore, even if you don't owe any tax and want to skip paying Intuit, you may practically speaking need to do the return to correctly accumulate the passive suspended losses for the VA property.

I don't want to be snarky or rude, but it may be that investing in out of state real estate or out of state pass-though entities violates point #5 in your sig. :|
I'd love to get rid of the property, but it doesn't make sense to.

I ended up paying Turbotax $45 in order to pay VA $18.
What did you end up doing about this, WCI? I am facing the same issue... I have rentals in Utah with net zero income and hate to spend $55 with taxact unnecessarily. Thanks in advance.
We sold it years ago. 2015 I think. Glad to be rid of it. Took a loss still after 9 years of ownership.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
travellight
Posts: 2892
Joined: Tue Aug 12, 2008 5:52 pm
Location: San Diego

Re: State taxes and out of state rental property

Post by travellight »

Thanks for the follow up, WCI! Did you end up filing in Virginia in 2014, paying turbotax $45 in order to pay VA $18? Just wondering if you paid in order to track the losses and avoid audit risk?
364
Post Reply