New York Advisory Opinion TSB-A-82(6)I: Can a former New York resident carry back an operating loss on New York rental property - his only New York-source item in a nonresident year - to an earlier year when he was still a New York resident?

Plain-English summary

Manuel S. Martinez was a New York resident from 1974 through July 1979, then became a nonresident. In December 1978, while still a resident, he bought an apartment house in Westchester County. In 1980, as a nonresident, he incurred an operating loss on that building - his only item of New York-source income, gain, loss, or deduction that year. The loss produced a federal deduction but no federal net operating loss carryback or carryover. He wanted to carry the loss back to his 1977 New York resident return, and also asked whether he'd need to file New York returns for 1981 (rental income) and 1982 (sale gain).

The Department had to reconcile two precedents pointing in different directions. Graham v. Tax Commission struck down a Tax Commission regulation that had denied a nonresident a net operating loss deduction based solely on New York-source items - so Martinez is entitled to a deduction for his 1980 New York-source loss even without an underlying federal net operating loss. But Shiels v. Tax Commission holds that a New York resident's deduction can't exceed what's actually claimed on the federal return - since Martinez had no federal net operating loss to carry back to 1977, he can't manufacture one on his New York return for a year he was a resident.

The Department's reconciliation: a nonresident's New York-source net operating loss (to the extent it exceeds any federal net operating loss) can be carried back and carried forward using the same time periods federal law allows (three years back, fifteen forward, under the 1980 rules incorporated via Tax Law § 632(b)(3)) - but only to years during which the taxpayer was a nonresident. It can't reach into a resident year, where the Shiels federal-conformity limit controls instead. So Martinez's 1980 loss could be carried back only to his short nonresident period from July through December 1979 (not his 1977 resident year), with any unused portion carried forward to nonresident years within the fifteen-year federal window - or he could elect to forgo the carryback and just carry the loss forward instead.

On the filing question, the Department confirmed that a nonresident must file a New York return under Tax Law § 651(a)(3) whenever New York adjusted gross income exceeds the specified filing thresholds. Since his 1981 rental income and 1982 sale gain would both be New York-source items under § 632(a)(1), he'd need to file nonresident returns for those years if the amounts exceed those thresholds.

What this means for you

Former New York residents with a New York-source loss arising after they became nonresidents

You're entitled to carry back or forward a New York-source net operating loss even without an underlying federal net operating loss - but that carryback/carryforward can only reach other nonresident years, not years when you were still a New York resident.

Taxpayers who transitioned from resident to nonresident status mid-career, with New York rental property

Track which of your tax years were resident versus nonresident years carefully - the same loss can be carried in either direction, but crossing the resident/nonresident line changes which rule (Graham's nonresident-friendly rule vs. Shiels's federal-conformity limit) governs whether the carryback actually reaches that year.

Nonresidents continuing to receive New York rental income or a later sale gain from previously New York-connected property

Check the section 651(a)(3) filing thresholds each year - continuing to receive New York-source income (rental income, then a sale gain) as a nonresident can trigger a New York filing obligation even if you no longer live in the state.

Common questions

Q: I have a net operating loss based only on New York-source income, and no federal net operating loss - can I still deduct it in New York?
A: Yes, if you were a nonresident in the loss year. Graham v. Tax Commission entitles you to that deduction even without an underlying federal net operating loss.

Q: Can I carry that loss back to a year when I was still a New York resident?
A: No. The carryback/carryforward can only reach years in which you were a nonresident. Reaching into a resident year runs into the Shiels rule, which ties a resident's New York deduction to what's actually claimed on the federal return.

Q: Do I need to keep filing New York returns after I stop being a resident if I still own New York property?
A: Yes, if your New York-source income (rental income, and later any gain from selling the property) exceeds the filing thresholds in Tax Law § 651(a)(3) - moving away doesn't end your New York filing obligation as long as you keep generating New York-source income above those thresholds.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a82_6i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-82-(6)-I
Income Tax
September 24, 1982

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO.I820322A

On March 22, 1982, a Petition for Advisory Opinion was received from Manuel S. Martinez,
210 West Rocks Road, Norwalk, Connecticut 06851.
The central issue presented herein is the proper treatment of a nonresident's operating loss
where such loss constitutes his only item of income, gain, loss or deduction connected with New
York sources, but where he did not have a Federal net operating loss with respect to the year of such
New York related loss.
Petitioner was a resident of New York from 1974 until July, 1979, during which period he
annually filed resident personal income tax returns. In December, 1978 Petitioner purchased an
apartment house in Westchester County. In 1980, during which year Petitioner was a nonresident of
New York, he incurred an operating loss with respect to such building. During 1980 Petitioner's sole
item of income, gain, loss or deduction derived from or connected with New York sources was the
operating loss arising from Petitioner's ownership of the apartment building. This loss was made the
basis for a deduction taken on Petitioner's 1980 Federal income tax return, but did not result in a
Federal net operating loss carryback or carryover. It is clear, based on the facts as here presented, that
Petitioner is entitled to a net operating loss deduction, pursuant to Matter of Graham v. Tax
Commission, 48 AD 2d 444, aff'd 40 NY2d 889. In that case the court held invalid a "regulation of
the Tax Commission denying a nonresident taxpayer a net operating loss deduction by way of carry­
back or carryover, which deduction is based solely on income, gain, loss or deduction derived from
or connected with New York sources." Id., at 445. See Matter of the Petition of David Van Alstyne,
Jr. and Janet G. Van Alstyne, State Tax Commission, May 1, 1981, TSB-H-82-(156)-I.
Petitioner seeks to utilize his net operating loss deduction as a carryback to his 1977, resident New
York personal income tax return. This he may not do. In 1977 Petitioner was a resident taxpayer and
filed his return accordingly. Section 612(a) of the Tax Law provides that the New York adjusted
gross income of a resident individual, the starting point in determining his New York taxable
income, means "his federal adjusted gross income as defined in the laws of the United States for the
taxable year, with the modifications specified in this section." Since Petitioner did nothave a Federal
net operating toss carryback to 1977, he can obtain no such benefit on his New York return by virtue
of his 1980 New York loss. As expressed by the Court in Shiels v Tax Comm, 95 Misc. 2d 605, rev'd
72 AD 2d 896, rev'd 52 NY 954:
There is no specific statutory provision whereby a New York State
resident is allowed a deduction for net operating loss or whereby such
a resident is allowed to carry back or carry forward a net operating loss

ROBERT W. BOUCHARD, ACTING COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (8/82)

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TSB-A-82-(6)-I
Income Tax
September 24, 1982

to tax years other than the tax year in which the loss was sustained. The
New York State resident has the advantages of deducting a net operating
loss and carrying back or carrying forward the unused portion of that
deduction only insofar as such items are, for Federal income tax
purposes, deducted from the gross income of that taxpayer. Id., at 606-7.
Thus, the court went on to say, "Section 612, as written, does not evidence a legislative intent to
permit a resident taxpayer a net operating loss deduction in excess of the deduction claimed on his
Federal return." Id., at 608.
It is accordingly necessary, in the present instance, to harmonize the Shiels and Graham
decisions. The desired harmony may be achieved by application of the following. A nonresident's
net operating loss in excess of his Federal net operating loss, if any, may be carried back and carried
forward, but only to years with respect to which he was or is a nonresident. In addition, a taxpayer
may elect to carry the net operating loss forward only, foregoing his right to carry it back to past
years. Thus, in the present instance, Petitioner's 1980 net operating loss may be carried back to his
short taxable year consisting of July through December of 1979, with respect to which period he was
a nonresident, and any unused portion of the loss may then be carried forward to those of the fifteen
years next succeeding 1980 with respect to which he is a nonresident. Alternatively, Petitioner may
elect to restrict himself to carrying his net operating loss forward to such fifteen years. The figures
three and fifteen represent the years to which a Federal net operating loss occurring in 1980 could
be carried back and forward for Federal income tax purposes. This use of Federal rules is in
accordance with the mandate contained in section 632(b)(3) of the Tax Law, which provides, in
pertinent part, that deductions with respect to net operating losses, except insofar as they are based
solely on New York items of income, gain, loss and deduction, "shall be determined in the same
manner as the corresponding Federal deductions."
Petitioner also inquires as to whether he is required to file personal income tax returns for
1981, based on the receipt of income from the apartment building in question, and for 1982, based
on a gain derived from the sale of such building. Section 651(a)(3) of the Tax Law requires the filing
of a return by a nonresident individual whose New York adjusted gross income exceeds certain
specified amounts. Section 632(a)(1) of the Tax Law provides that the New York adjusted gross
income of a nonresident individual includes, inter alia, the "net amount of items of income, gain, loss
and deduction entering into his federal adjusted gross income, as defined in the laws of the United
States for the taxable year, derived from or connected with New York sources ...” Income from the
apartment building, and any gain from its disposition, would constitute items of income and gain

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TSB-A-82-(6)-I
Income Tax
September 24, 1982

includible in Petitioner's New York adjusted gross income. Assuming these items to be Petitioner's
only such items derived from or connected with New York sources, Petitioner would be required to
file nonresident returns where the magnitude of such items of income and gain exceed the amounts
specified in section 651(a)(3) of the Tax Law.

DATED: September 22, 1982

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau