How do I report income from a rental property I own in California if I live in a different state?
As an out-of-state owner of a California rental property, you must report all rental income to California by filing a California Nonresident or Part-Year Resident Income Tax Return (Form 540NR). California taxes income where it is earned, which includes rent from property located within the state.
Here's how to report your California rental income:
Step 1: Collect Your Financial Documents
Gather all records related to your rental property for the tax year. This includes records of all rent payments received, and receipts for all deductible expenses like mortgage interest, property taxes, insurance, repairs, maintenance, and property management fees. You will also need your completed federal tax return.
Step 2: Complete Your Federal Tax Return (Form 1040)
You must complete your federal income tax return first. The information from your federal return, specifically your Federal Schedule E (Supplemental Income and Loss), is required to complete your California return.
Step 3: Obtain California Tax Form 540NR
Go to the California Franchise Tax Board (FTB) website (ftb.ca.gov) to download the "California Nonresident or Part-Year Resident Income Tax Return" (Form 540NR) and its instructions. You will also need Schedule CA (540NR) to report your California-source income.
Step 4: Calculate and Report Your California-Source Income
On Schedule CA (540NR), you will report the net income or loss from your California rental property. This rental income is considered "California-source income" under California Revenue and Taxation Code Section 17951 and is subject to California income tax. The net profit or loss from your federal Schedule E is the starting point for this calculation.
Step 5: File Your Return by the Deadline
You must file your Form 540NR and pay any tax due by April 15th each year. You can file electronically using the FTB's CalFile service or other approved tax software, or you can mail the paper forms to the address specified in the form instructions.
Important considerations:
If you use a property manager or agent in California, they may be required to withhold 7% of your gross rental payments and send it to the FTB on your behalf, as per California Revenue and Taxation Code Section 18662. If withholding occurred, be sure to claim it as a tax payment credit on your Form 540NR.
Note:
Failure to file a California return and pay tax on California-source rental income can result in significant penalties and interest. Calculating depreciation and other deductions can be complex; professional assistance is often beneficial.
This is general information and does not constitute legal advice. For complex situations, consult with a qualified California attorney or tax professional.
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Disclaimer:
This information is for general guidance only and should not be considered as legal advice. Please consult with a qualified attorney for specific legal matters.
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Updated: August 14, 2025
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