NY PREPARERS - HELP WITH NY NON RESIDENT RETURN

[LSmith33]

New client this year, married couple. They live in Massachusetts and own rental property in NY with rental losses in 2005 & 2006 totaling $2,935 (bought property in 2005). Previous preparer did not file NY returns for 2005 & 2006. Should they have filed (and can they still file) to establish a loss carryforward on the NY property? I read in the NY instructions that you can have a NOL as a NY non-resident even though there is no federal NOL.

They do have a small rental income this year of $105. I realize they may not be required to file in NY, but my concern is being able to offset any future income with the losses. I completed form IT-203 for 2005 & 2006, and found a worksheet for part-year residents where you can allocate non-NY income and NY non-resident income, but they're not part year residents. They've never lived in NY. So I don't know if this is the correct sheet to use. There is a statement of NY Non-Residency that I found as well, but it states "The taxpayer is domiciled in __________ and is on temporary assignment in the US", etc etc. They're not on temporary assignment. They live in Mass and have non-resident NY income/losses.

Help! I'm very confused. Is this worth it?

Thanks!

~Laura Smith, EA