A Not So Easy Massachusetts Tax Question

Technical topics regarding tax preparation.
#1
Wiles  
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A CA resident owns a rental property in MA. Each year, this rental shows a loss. They have no other MA source income. Therefore, this loss provides no benefit on their MA NR tax returns.

Can the taxpayer claim those accumulated losses in full in the year of sale against the gain on the rental property?

I understand MA does not allow an NOL carryforward deduction. They do allow suspended PAL carryforward to offset. However, I do not believe these losses are being suspended under the PAL rules.
 

#2
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Haven’t they gotten the benefit on their CA return? Won’t they get a resident credit in CA in the year of sale for the tax paid to MA?
 

#3
Wiles  
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Unfortunately, they have no CA tax to offset against.

It's too bad they were not high income all these years. Those accumulated losses would be sitting there as suspended passive losses.
 

#4
Nilodop  
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I thought PALs are suspended first, so you don't even get to NOLs. Or are you referring to the $25k loss allowed on rental properties? Or am I out of touch?
 

#5
Wiles  
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Yes. A portion of the 'up to $25K loss' was being allowed each year.

The unallowed losses did remain as a suspended passive carryforward and those are providing a benefit in the year of sale.

However, the portion that got allowed provided no benefit on the MA NR return when they were allowed and are also providing no benefit now in the year of sale. I guess that is just how it works when a state does not allow an NOL carryforward.

Maybe, we should take the position they did not actively participate and thus no $25K allowance.
 


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