NC state nonresident with rental -would you file? and related question.

[jklcpa]

One of my Delaware couples own a house in North Carolina that they turned into a rental starting in July, 2012. It is short-term vacation type of rental. The house is in joint names but the management company issued each of them a 1099-misc for $3427. They've had a rocky relationship in the past and is most likely the reason for splitting the income onto 2 1099s. I believe they will file a joint federal return and would not have to file a NC return if filing on a joint basis because the filing threshold is $11,000 (but is $2,500 if filing separate returns).

Is there any reason why I should consider filing a NC return? If they separate or file separately in the future, would it be better to file the return to document the activity and the depreciation even though they wouldn't own anything for 2012?

Would you start out with the property split onto 2 columns of the Sch E because of the 2 1099s or add them together?

[Terry D EA]

If this couple was a resident of NC anytime during the year, then yes, a "Part Year" resident return should be done. Where did they live prior to the move to Delaware? The income from the rental may be considered income earned from NC sources.

[jklcpa]

They are lifelong Delaware residents, never ever were NC residents. Back in the mid '80s they purchased a lot in NC and built a vacation house. Because of some financial difficulties, they decided to turn the vacation home into a rental last year. This rental income is the only NC income they have, and the gross rental is below the filing threshold. I'm only concerned that if they split up in a future year, or decide to file separately in future, that they *might* have high enough rental income to require a NC return and that NC would then see that the home was rented in prior years because of the date placed in service and depreciation taken. That is really my concern whether or not to file this 2012 return. The property is being managed for them by a realty company. Would NC have received copies of the 1099miscs that were filed?

[kcjenkins]

I would not bother with it unless there is a VERY HIGH probability of them splitting up soon. I'd just note the details, and that the NC income was below the filing requirement, plus that if they had needed to file there would still have been no tax liability.

[Randall]

There could be local filing requirements, rental licensing, property tax. I have a client with property in SC. Pain in the neck.