Hawaii nonresident income tax

[Pico Rico]

If one owns a vacation rental condo in Hawaii (and that is all), a Hawaii
state income tax return is required, regardless of whether there is any
taxable income or not.

The instructions say:

Election to File Form N-15 Without Providing

Information as to Worldwide Source Income

In lieu of providing information as to worldwide source income, nonresident

taxpayers (including nonresident alien taxpayers) and part-year resident
taxpayers

may elect to file Form N-15 without claiming any standard deduction

or personal exemption amounts. Itemized deductions calculated using the

ratio of Hawaii adjusted gross income to Total adjusted gross income may not

be claimed. Also, tax credits which are based on total adjusted gross income

from all sources may not be claimed. To make this election, enter zero on
line

36, Ratio of Hawaii AGI to Total AGI.



Does this mean I can consider my California Source Income as "worldwide
source income" and substantially ease the paperwork burden with respect to
Hawaii?



Also, it says you need to file a copy of your Federal return. Is this true
if you make the above election? Yes or no, do you need to file a copy of
ALL of the federal return, or just the 1040 itself?

 

[Alan]

If one owns a vacation rental condo in Hawaii (and that is all), a Hawaii
state income tax return is required, regardless of whether there is any
taxable income or not.

The instructions say:

Election to File Form N-15 Without Providing

Information as to Worldwide Source Income

In lieu of providing information as to worldwide source income, nonresident

taxpayers (including nonresident alien taxpayers) and part-year resident
taxpayers

may elect to file Form N-15 without claiming any standard deduction

or personal exemption amounts. Itemized deductions calculated using the

ratio of Hawaii adjusted gross income to Total adjusted gross income may not

be claimed. Also, tax credits which are based on total adjusted gross income

from all sources may not be claimed. To make this election, enter zero on
line

36, Ratio of Hawaii AGI to Total AGI.



Does this mean I can consider my California Source Income as "worldwide
source income" and substantially ease the paperwork burden with respect to
Hawaii?



Also, it says you need to file a copy of your Federal return. Is this true
if you make the above election? Yes or no, do you need to file a copy of
ALL of the federal return, or just the 1040 itself?

Each year I prepare a nonresident Hawaii return for a friend who has
rental property in Hawaii. Hawaii does not use the generally accepted
method used by other states to calculate state tax. Most of the other
states calculate the tax on worldwide income and apply a ratio of state
sourced income to federal income to arrive at the tax. Hawaii calculates
the tax by using your Hawaii sourced AGI and allows you to take
deductions and exemptions by applying the AGI ratio to those items
before arriving at the taxable state income. Because of this method,
Hawaii can give you the option of foregoing any deductions, personal
exemptions and credits by using your Hawaii AGI as your Hawaii taxable
income. This election also allows you to avoid having to complete
Column A, your worldwide source income. However, you are required to
attach all forms and schedules of your federal tax return to the N-15
whether you make the election or not.

Just to make sure we are not talking past each other.... Column A of the
N-15 wants your worldwide income as if you were a Hawaii resident. This
is your federal income adjusted to Hawaii law. It's the same method that
CA uses for nonresidents. E.g., neither CA or HI would want you to
include taxable social security benefits in your worldwide income as
neither state taxes those benefits. The only difference between CA and
HI is that CA asks for your federal numbers and then gives you two
columns to add and subtract from that to conform to CA law. HI only
gives you one column to enter the income and adjustments based on HI law.

If you are a CA resident and CA is taxing your HI income and you also
pay tax to HI on that same income, CA will give you a credit for the HI
taxes. See CA Schedule S.

 

[Pico Rico]

Each year I prepare a nonresident Hawaii return for a friend who has
rental property in Hawaii. Hawaii does not use the generally accepted
method used by other states to calculate state tax. Most of the other
states calculate the tax on worldwide income and apply a ratio of state
sourced income to federal income to arrive at the tax. Hawaii calculates
the tax by using your Hawaii sourced AGI and allows you to take deductions
and exemptions by applying the AGI ratio to those items before arriving at
the taxable state income. Because of this method, Hawaii can give you the
option of foregoing any deductions, personal exemptions and credits by
using your Hawaii AGI as your Hawaii taxable income. This election also
allows you to avoid having to complete Column A, your worldwide source
income. However, you are required to attach all forms and schedules of
your federal tax return to the N-15 whether you make the election or not.

Just to make sure we are not talking past each other.... Column A of the
N-15 wants your worldwide income as if you were a Hawaii resident. This is
your federal income adjusted to Hawaii law. It's the same method that CA
uses for nonresidents. E.g., neither CA or HI would want you to include
taxable social security benefits in your worldwide income as neither state
taxes those benefits. The only difference between CA and HI is that CA
asks for your federal numbers and then gives you two columns to add and
subtract from that to conform to CA law. HI only gives you one column to
enter the income and adjustments based on HI law.

If you are a CA resident and CA is taxing your HI income and you also pay
tax to HI on that same income, CA will give you a credit for the HI taxes.
See CA Schedule S.

Thank you. I don't know why, but taxpayer hates the thought of giving a
state a copy of my federal return if it is not to be used to calculate that
state's taxes. I tend to agree, again, without a specific reason.

Another question: I am assuming that there would be a NOL from this rental
activity, given depreciation, maintenance and repairs, etc. Does Hawaii
allow NOL carryforwards (indefinitely?) for future use against positive
income for a year, or a capital gain when the property is sold?

 

[Alan]

Thank you. I don't know why, but taxpayer hates the thought of giving a
state a copy of my federal return if it is not to be used to calculate that
state's taxes. I tend to agree, again, without a specific reason.

You can choose not to attach your federal return and maybe you will not
get a letter asking for it. I have no experience in this matter with HI.

Another question: I am assuming that there would be a NOL from this rental
activity, given depreciation, maintenance and repairs, etc. Does Hawaii
allow NOL carryforwards (indefinitely?) for future use against positive
income for a year, or a capital gain when the property is sold?

See the N-15 instruction on page 7 for Line 19 Other Income. It explains
the carry back and carry forward rules for NOLs.
http://www6.hawaii.gov/tax/2011/n15ins.pdf

 

[Pico Rico]

[snip]

Another question: I am assuming that there would be a NOL from this
rental
activity, given depreciation, maintenance and repairs, etc. Does Hawaii
allow NOL carryforwards (indefinitely?) for future use against positive
income for a year, or a capital gain when the property is sold?

See the N-15 instruction on page 7 for Line 19 Other Income. It explains
the carry back and carry forward rules for NOLs.
http://www6.hawaii.gov/tax/2011/n15ins.pdf

Thank you, Alan. One more question: can the NOL due to the Hawaii condo be
used on the Calif resident's California Income Tax return?

 

[Alan]

On 7/10/12 4:59 PM, Pico Rico wrote:
[SNIP]

Thank you, Alan. One more question: can the NOL due to the Hawaii condo be
used on the Calif resident's California Income Tax return?

As a resident of CA, you include your out of state rental income/loss on
your CA return because it flows from your federal return. You then make
adjustments, if required, because CA and federal law differ on
depreciation schedules (Schedule CA(540)). Then you complete CA Form FTB
3801 and its worksheets to see how much of any passive loss may be
allowed on your CA return. Completing FTB 3801 is not for the faint at
heart.

 

[Pico Rico]

On 7/10/12 4:59 PM, Pico Rico wrote:
[SNIP]

Thank you, Alan. One more question: can the NOL due to the Hawaii condo
be
used on the Calif resident's California Income Tax return?

As a resident of CA, you include your out of state rental income/loss on
your CA return because it flows from your federal return. You then make
adjustments, if required, because CA and federal law differ on
depreciation schedules (Schedule CA(540)). Then you complete CA Form FTB
3801 and its worksheets to see how much of any passive loss may be allowed
on your CA return. Completing FTB 3801 is not for the faint at heart.
--

assuming taxpayer has plenty of other passive gains, then you just skip the
FTB 3801 because all the losses will be more than offset by the gains,
right?

But does Calif want you to exclude the out of state loss because it is out
of state, or can it be used?

 

[Alan]

On 7/10/12 4:59 PM, Pico Rico wrote:
[SNIP]

Thank you, Alan. One more question: can the NOL due to the Hawaii condo
be
used on the Calif resident's California Income Tax return?

As a resident of CA, you include your out of state rental income/loss on
your CA return because it flows from your federal return. You then make
adjustments, if required, because CA and federal law differ on
depreciation schedules (Schedule CA(540)). Then you complete CA Form FTB
3801 and its worksheets to see how much of any passive loss may be allowed
on your CA return. Completing FTB 3801 is not for the faint at heart.
--

assuming taxpayer has plenty of other passive gains, then you just skip the
FTB 3801 because all the losses will be more than offset by the gains,
right?

Can you pass this test?

Exception. You do not have to file form
FTB 3801 if you meet both of the following
conditions:
• You have a net loss from rental real estate
activities that is fully deductible under the
special allowance for rental real estate.
• You have no other passive activities.

But does Calif want you to exclude the out of state loss because it is out
of state, or can it be used?

I haven't prepared a CA state return with out of state passive losses in
a good number of years. However, I do monitor changes in CA tax law. I
am not aware of anything in CA tax law that says a CA resident has to
exclude the loss because it doesn't have its source in CA.

 

[Pico Rico]

On 7/10/12 4:59 PM, Pico Rico wrote:
[SNIP]

Thank you, Alan. One more question: can the NOL due to the Hawaii
condo
be
used on the Calif resident's California Income Tax return?


As a resident of CA, you include your out of state rental income/loss on
your CA return because it flows from your federal return. You then make
adjustments, if required, because CA and federal law differ on
depreciation schedules (Schedule CA(540)). Then you complete CA Form FTB
3801 and its worksheets to see how much of any passive loss may be
allowed
on your CA return. Completing FTB 3801 is not for the faint at heart.
--

assuming taxpayer has plenty of other passive gains, then you just skip
the
FTB 3801 because all the losses will be more than offset by the gains,
right?

Can you pass this test?

Exception. You do not have to file form
FTB 3801 if you meet both of the following
conditions:
• You have a net loss from rental real estate
activities that is fully deductible under the
special allowance for rental real estate.
• You have no other passive activities.

well, taxpayer has net passive income. Are you saying FTB 3801 must be
filled out and filed even then?
"If line 3 shows income, all of your losses are allowed, including any prior
year unallowed losses entered on line 1c or line 2c. Transfer the income and
losses to the form or schedule on which you normally report them. "

I haven't prepared a CA state return with out of state passive losses in a
good number of years. However, I do monitor changes in CA tax law. I am
not aware of anything in CA tax law that says a CA resident has to exclude
the loss because it doesn't have its source in CA.

thank you.

 

[Alan]

well, taxpayer has net passive income. Are you saying FTB 3801 must be
filled out and filed even then?

If you have losses from a passive activity you have to file the 3801
unless you meet the exception I posted. The exception is for an entity
that has a net loss from rental real estate that is fully deductible AND
has no other type of passive activity (gain or loss).

 

[Pico Rico]

If you have losses from a passive activity you have to file the 3801
unless you meet the exception I posted. The exception is for an entity
that has a net loss from rental real estate that is fully deductible AND
has no other type of passive activity (gain or loss).

If you have a net gain from all your passive activities, is there ever a
possibility that a loss from ONE passive activity would not be fully
deductible?

 

[Alan]

If you have a net gain from all your passive activities, is there ever a
possibility that a loss from ONE passive activity would not be fully
deductible?

The answers to all your questions have been posted or can be found in
the CA instructions for the 3801 under who must file.

 

[removeps-groups]

Also, it says you need to file a copy of your Federal return. Is this
true if you make the above election? Yes or no, do you need to file a
copy of ALL of the federal return, or just the 1040 itself?

Probably just the 1040. However, you should eFile and the tax program will
take care of whatever is necessary behind the scenes.

 

[KristianB]

Dear Alan

Please could you get in touch? I am a non resident alien and bought a condo in Hawaii last year. I am looking for an account to file my 2012 state and federal tax returns.

Best regards

Kristian

 

[caldonna49]

Does Hawaii recognize passive loss carryovers on rental property?

Does Hawaii recognize passive loss carryovers on rental property?