I have a CA rental property generating loss, do I need to file CA tax return?

Forum|Forum|2 years ago
March 19, 2024
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I have a rental property in CA, it's generating paper loss.

I don't have any other income from CA.

I didn't step into CA for the whole year.

I have filed my federal return and it's accepted.

The CA state tax return will be $0 since no income and no withhold.

Must I file CA tax return?

My income exceeds the limit to use CalFile so I have to pay for other software to E-file, which doesn't make sense to file a 0 with extra cost.

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jtax

Employee

This is a very good question.

I think you probably have to file, but you can review the info below and decide (or consult a professional).

See

https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html#Filing-requirements

there are two tests. Both involve gross income not net income. While your net CA income is negative, your gross income is positive if you received any rent during the year.

The two tests involve 1) worldwide income and 2) California income. CA income is AGI, so there might be some deductions allowed. Not sure.

This article from an attorney addresses your question and says "even a dollar of California source gross rental income earned by a nonresident individual requires the filing of a California individual nonresident income tax return each year that rent is received (even if no tax is due after allowable deductions are taken into account)."

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zxl9171Author

Thanks for the informational reply!

I also found the two tests and seems if any of them are met, I need to file.(I’m a little bit confused, if it’s ANY but not BOTH, everyone in the world should file CA tax?)

I definitely passed the first test for worldwide income, while the second test I’m not sure.
In form 540NR, the rental income is determined by Schedule E from form 1040, which is $0 since passive loss cannot exceed passive income. So basically if I file, I would file a all $0 540NR with my 1040 attached, that doesn’t make sense to me.

Thinking in another way, what’s the consequence if I don’t file? CA will find I have an 1099-MISC for rental income, then they will pull my 1040 from IRS, and found the rental income was $0 on schedule E, will they fine me for not filing? I feel since I don’t owe, they cannot fine me, but please correct me if I’m wrong.

PatriciaV

Employee

If you had California-sourced income, you should file a California state tax return. Even if you ultimately owe no state income tax, the requirement is to file a return.

Check the California FTB website for e-filing options: California eFile Options

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