CA and CO

[Acownt4it]

rental income. TP is a Realtor. Lives in IL and conducts his regular Real Estate business in IL. He has residential rental property in CA and CO. The gross income for CA is $46822 and CO is $22350. My understanding of the All States tax book is that a Nonresident return needs to be filed for CA and CO and IL taxable income will be reduced by the net rental income for these properties.
Can someone confirm this for me?
This is a new client and he has never filed state returns for any of these properties before except IL and he seemed shocked that he would have to file for these other states. He did have another professional tax preparer doing his taxes before coming to me.

[RLymanC]

Other State taxes

File an NR for both CA and CO. Include all rental income on his IL return, and allocate CA rental income on CA NR. Do the same with CO.

Include the net rental income plus all other income on his IL return. Go to IL form Sch CR to recieve credit for taxes paid to other states.

[jainen]

double taxation

Since he is an IL resident, ALL of his income from everywhere is taxable to IL. CA and CO will ALSO tax the rental income according to the percentage of total income represented by each state. He can take a credit on his home state return for the double taxation.

This is very different from what he has been doing and what you propose. Note that 100% of his total world-wide income is reported on his CO and CA returns, as well as on his IL return. The math is a little hard to follow, but in the end he will only be taxed once at the state level (although it will be at the highest rate).

[Acownt4it]

thanks

for your replies. I know he is going to throw a fit when I tell him that we have to file a return for all three states because "the other guy never did that." I am sure everyone knows that drill.
I will be printing these replies to back up the copies of the state criterias.