Filing State Tax Return for State with Rental Properties?

Question

I have a rental property in Michigan and one in North Carolina but live in New York.

Do I need to fill out State tax forms for MI and NC?  I'm thinking yes but wanting to confirm from anyone who may know.  Thx!

James Kendrick · Answer

If you are carrying forward a capital loss there would be no need to file.  Your basis in the property would carry forward from your federal return.  If someone were to challenge how you arrived at your basis you would always look to your federal return for the details.  Generally when you complete your state return the starting point is always your federal taxable income.

As far as penalties, it would seem odd to pay a penalty to a state for failing to tell them that you don't have any taxable income in that state.

Steve Babiak · Answer

When you don't file, there might be a penalty for failure to file, and even worse they could try to say "tax evasion" ...

Terry N. · Answer

James, thanks for making this point.  That was actually one of the main reasons for asking the question.  Any other commenters on this point would be great.  These properties produce a capital loss with no income.  I went through the process of state filing but didn't owe any tax and was not getting any tax return.  So I was like, what's the point, it costs me money to file.  I have a gut suspicion though that the each state needs to know whats going on with the properties regardless of whether they produce taxable income.

James Kendrick · Answer

Doesn't this depend on whether the property produces taxable income?  I would think if the property produces a capital loss, the loss would carryover and there would be no income due to the state and no filing needed.

Terry N. · Answer

got it, thanks you guys...

Joseph Accetturo · Answer

Absolutely you do!  Be sure to hire a tax pro like a CPA.  If you try to do it yourself with quickbooks or HR Block, I can almost guarantee you will make a mess.

Elizabeth Colegrove · Answer

Yup!

It is why I have to file in VA, SC, and California even though our "state residency" is Texas :) Welcome to owning real estate in multiple states lol