Do I need to file a tax return in another state for my rental property if I live elsewhere?

Yes, in most cases. 

If you own a rental property in a state where you do not live, you usually must file a nonresident state income tax return in the state where the property is located.

This is because rental income is taxed by the state where the property sits, regardless of where you live.

1. Why the Rental State Can Tax You

States have the legal right to tax income that has a source within their borders. 

Rental income is considered sourced to the location of the real estate.

This rule applies even if:

• You never set foot in that state
• A property manager handles everything
• The income is small

2. What You Usually Have to File

In the state where the rental property is located

• File a nonresident state income tax return
• Report:
  
  • Rental income
  • Rental expenses
  • Net profit or loss from that property

In your home state

• File your resident state return
• Report all income from everywhere, including the out-of-state rental
• Claim a credit for taxes paid to the other state (to avoid double taxation)

3. How Double Taxation Is Avoided

Even though two states may tax the same rental income:

• The property state taxes it first
• Your home state usually gives you a tax credit for the taxes paid to the other state

This credit prevents you from being taxed twice on the same income.

4. What If the Rental Has a Loss?

This depends on the state:

• Some states still require a nonresident return even if there is a loss
• Others may not require filing if:
  
  • There is no taxable income, and
  • The loss does not create a carryforward

Filing is often recommended anyway to:

• Establish a state loss carryforward
• Avoid state notices or penalties later

5. Common Situations Explained

Example 1: Most Common

• You live in Texas
• You own a rental property in California

File:

• California nonresident return
• Texas return (Texas has no personal income tax, so no credit needed)

Example 2: Two Taxing States

• You live in New York
• You own a rental property in Florida

File:

• Florida → no income tax return (no state income tax)
• New York resident return, reporting the rental income (no credit needed)

Example 3: Small Rental Income

• You earned $1,500 net rental income in another state

Most states still require a nonresident return, even for small amounts

6. What Does Not Eliminate the Filing Requirement

• Having a property manager
• Owning the property through an LLC (pass-through entity)
• Living in a no-tax state
• Receiving income via a platform or trust

The location of the real estate controls.

7. Federal Return Reminder

Regardless of state filings:

• Rental income is always reported on your federal return
• Usually on Schedule E (Form 1040)

Summary

• You generally must file a nonresident return in the state where your rental property is located
• You also report the income on your home-state return
• Your home state usually gives a credit for taxes paid to the other state
• Filing may be required even if the rental has a loss
• The property’s location, not your residence, controls state taxation

Related Questions

• Do I need to file tax returns in every state where I work as a travel nurse?
• Are mortgage points deducted or amortized?
• What are the tax implications of guaranteed payments to partners?

Source:

• IRS Publication 527, Residential Rental Property
• IRS Schedule E Instructions
• IRS Publication 525, Taxable and Nontaxable Income
• Part-year resident and nonresident