Is a Non-Resident State Tax Return Required for a Net Loss?

Question

My husband and I have an LLC (taxed as partnership) located and registered in GA (where we live), which had an overall net loss for 2018. We also have a subsidiary SMLLC (owned by the partnership) that is registered in KS and owns a commercial property there. That subsidiary LLC also had a net loss for 2018. Does the partnership need to file a state return in KS for 2018? If so, it will be the parent company filing the return, since the subsidiary is a disregarded entity. Will it pose any problem for the parent company to file a state return there if it is not registered with the KS Secretary of State?

All the losses ultimately flow through to our personal joint return, but we will not be able to claim any of them in 2018 because of passive loss restrictions. If the answer to the above question for the partnership is yes, then do I also need to file a KS personal return, just to report losses that I cannot claim for this year?

When I do eventually get to claim these passive losses, can I only claim KS losses at the state level against other KS income? Or if I have passive income in GA in the future, can I claim my previous KS losses on my future GA return? What happens if I eventually sell the KS property at a loss and never realize a gain there, while at the same time selling a GA property with a capital gain? On the state returns, can I claim the KS capital loss on my GA return to offset the GA capital gain? I understand how all this works at the federal level, but the inter-state details are a little more murky for me! Any help is appreciated! Thank you!

Steven Hamilton II · Answer

I'm going to disagree as some states will not match the Fed. Some states require a tax return based upon the gross income. Some Cities also require a return based upon the Gross income.

Steven Hamilton II · Answer

The problem is you get what you pay for. If you're not willing to invest in quality advice you won't find quality. I'm not sure what your portfolio looks like; however, you should be aware as to what is reasonable and what is not a DIY program does not answer your questions.

This link is a few years old however, those were some average rates for various forms: https://connect.nsacct.org/blogs/nsa-blogger/2017/...

You do need to file each state to maintain those losses as the gross income is your primary issue if they decide to examine a return. There are differences in depreciation between the Fed and State.

Margaret Feit · Answer

Thank you both for your replies. As @Eamonn McElroy pointed out, I did post an awful lot of questions in one post. Sorry for that! I would love to ask my CPA about all this, but since I do my own taxes, I have so far been unable to find a CPA who is willing to work with me at a reasonable price point just to answer occasional questions, so I don't know who to call with these sorts of questions. If either of you would be willing to pitch in on one follow-up question, I would greatly appreciate it.

I don't foresee this property ever turning an income, and we are thinking at this point that we will have to end up selling it at a substantial loss in the next year or two. (Hear the frustrated disappointment in that statement...!) At whatever point we are able to claim the losses on our federal return, either through the sale of the property or by receiving passive income elsewhere, will we be able to claim these losses on our GA tax return against our GA income, or do we never get to claim a state tax loss on them if we never have income in KS?

Thank you!

Lance Lvovsky · Answer

@Margaret Feit

Maybe. Could be good to carryforward losses, such as passive activity or nol. Ask your cpa.

Eamonn McElroy · Answer

@Margaret Feit

I'm not going to touch on all of your questions (I counted seven), but generally speaking a state tax return is not required if you have a net source loss.  Really it depends on the individual state's rules surrounding what constitutes a filing obligation.

That being said, if your strategy is to eventually sell the property, or you foresee it flipping from loss to income, it may be advisable to file a KS partnership return and a KS non-resident individual tax return to document NOL for future offset against KS source gain/income.

All questions together would make a great conversation with your tax CPA/EA.