Do states tax rental income on U.S. property I own while living abroad?

States that impose income tax assess state tax on rental income from in-state real estate regardless of where the owner lives. Expats with U.S. rental property file nonresident state returns (or part-year if they left mid-year) (State Tax Agency List).

How the nonresident rental state tax works:

• State-source income: rental income is sourced to the state where the property sits.
• Nonresident return: report only state-source income.
• Deductions include depreciation, property tax, interest, repairs, insurance, and management fees.
• Federal FTC won’t help: state tax paid is not a foreign tax; federal FTC does not offset.

States with no income tax do not impose a rental tax even on property located there. Florida, Texas, Nevada, Washington, Wyoming, Alaska, South Dakota, Tennessee, and New Hampshire exempt rental income at the state level.

If the property is in a different state than your former residence, you may owe tax to both states until you fully break your old-residency ties. The nonresident state typically gives credit against the other state’s tax, but the rules vary.

For more, see our How to Report Rental Income from Foreign Property guide.