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Author: hereandnow Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 122648  
Subject: Wanna know how dumb people can be? Date: 4/13/2008 9:28 PM
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We own a rental house in Massachusetts. We live in California. (When we moved we kept the family house.) The house has been rented out for ten years. All that time we've been filing our taxes in California ... and not Massachusetts. And paying taxes on the rental income in California ... and not Massachusetts.

We had a tax pro for the first three years that I was rather friendly with and had multi-hour conversations with on financial matters -- and he never asked the right questions, and (you may have trouble believing this) I Just. Never. Thought of it. I'd lived in Massachusetts all my adult life, only ever filed taxes there, had never thought of the tax implications of moving from one state to the next. Oh, and the move took place over New Year's, so I never earned a salary in both states.

I did finally stop going to him because he was getting up there and seemed not to be quite as alert as a client would like. Guess I was right.

What in the world do I do now?
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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100286 of 122648
Subject: Re: Wanna know how dumb people can be? Date: 4/13/2008 10:54 PM
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We own a rental house in Massachusetts. We live in California. (When we moved we kept the family house.) The house has been rented out for ten years. All that time we've been filing our taxes in California ... and not Massachusetts. And paying taxes on the rental income in California ... and not Massachusetts.
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Actually, if you have net income from the property, it would be taxable in both states. Rents from real estate is always taxable in the state of location, or Mass. And you have to pay Cal. tax on your total income. But then to alleviate the double bite, Cal. gives you a credit for the Mass. tax paid - subject to limitations. The credit is claimed on Cal Schedule S -Taxes paid to other states.

As to how much of problem you have with Mass., it's hard to say. If the property has been producing a loss - which most rentals do - no big deal. You owe Mass. 10 years worth of returns. Whether you send it to them is up to you. You probably ought to, to document any net operating losses (or passive losses, if applicable) that you could carry forward from one year to the next.

You sound like it's been producing income. Then you've got a problem with Massachusetts.

In a case like this, what I would do, and have done, is to contact the state tax dept. and explain the situation without mentioning the clients' name, just to see what they'd go for. Maybe filing returns for just the last 3 years or so, and not assessing penalties, in return for getting those returns filed and paid. Some states have more formal programs in place to get people into compliance voluntarily, and with others it's a little looser.

And if you do owe money to Mass. you will be able to get most, if not all of it, back from California, at least for the years that are still open to amend - the last 4, I believe. Although the statute will run out on 2003 this Tuesday. (Assuming you filed by April 15, 2004.)

When you say you had "a tax pro" who "never asked the right questions", I guess that's an understatement. The location of the property would definitely be a right question. And he never saw a tax bill or anything with the property address on it?


Bill

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100287 of 122648
Subject: Re: Wanna know how dumb people can be? Date: 4/13/2008 10:58 PM
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Since you're a CA resident, the income from your MA rental is taxable in CA. You probably also need to file a MA return. (I don't know MA law off hand, but most states require it in your situation.)

If you owe any tax to MA on this income, CA will give you a credit to help soften the double taxation blow.

As to what to do - you need to figure out if MA needs tax returns for those back years. If so, file them. If necessary, you can amend the last four CA returns to claim that credit for taxes paid to another state.

--Peter

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Author: hereandnow Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100288 of 122648
Subject: Re: Wanna know how dumb people can be? Date: 4/13/2008 11:19 PM
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When you say you had "a tax pro" who "never asked the right questions", I guess that's an understatement. The location of the property would definitely be a right question. And he never saw a tax bill or anything with the property address on it?

It was a long time ago. He didn't prepare my taxes; he gave me a few hours' advice each time -- I probably spent twelve or so hours talking with him over three years. I don't know whether he told me to pay in CA (seems impossible) or whether he somehow never knew about the house at all -- which also seems impossible. I'm quite sure he never told me to file a Massachusetts return or I'd have done it. I do recall that we discussed whether to file a MA return on a small bonus of some sort that I got from my MA employer that was paid in the new year, and he advised against it -- said that MA would try to tax my entire income (meaning what I earned in California) if I reported any part of it.

I just googled him and located his wife at the same address. He's not mentioned. I'll check but I suspect he's not available for questions.

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Author: DBAVelvet74 Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100342 of 122648
Subject: Re: Wanna know how dumb people can be? Date: 4/14/2008 8:16 PM
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I do recall that we discussed whether to file a MA return on a small bonus of some sort that I got from my MA employer that was paid in the new year, and he advised against it -- said that MA would try to tax my entire income (meaning what I earned in California) if I reported any part of it.

I think this was also bad advice.

We are in this situation right now. DH's union was working without a contract for quite a while, and they finally finished the contract negotiations last year, so DH, a VA resident, got a paycheck for the back pay from WI. WI state taxes were withheld. We reported the income on federal, WI, and VA income taxes. WI ends up being a wash, nothing due, no refund. But VA is giving us a credit since that income was taxed elsewhere.

But WI is not trying to tax us on all of it. They have a special form for non-residence and I suspect MA does as well.

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Author: hereandnow Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100358 of 122648
Subject: Re: Wanna know how dumb people can be? Date: 4/14/2008 10:27 PM
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I think this was also bad advice.

In retrospect I agree with you. It was a PDS bonus, ten years ago; phooey. However, the rental has turned a profit most years -- not always large but definitely there. I'll be filing for an extension and locating some lucky soul to dump all this in the lap of. I'm sure there's a lot of hours of work in this for somebody (sigh).

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