California Taxes for Out-of-State Long Beach Landlords 2026

Published: June 21, 2026  |  18 min read

By Miles Williams, Broker/Owner | CA DRE #01968830 | RPM Southland

Updated June 2026 for current California Franchise Tax Board requirements and Prop 19 provisions

If your Long Beach rental property is in California and you’re not, you have a two-state tax situation that most CPAs outside of California underestimate. California has some of the most aggressive non-resident taxation rules in the country, and rental income from California property is 100% California-source income with no exceptions. The Franchise Tax Board will find you eventually if you’re not filing.

I’ve been managing properties in Long Beach since 2014, and we currently manage over 730 properties across the South Bay and Southeast LA. A significant portion of our owner base lives out of state. The number one compliance gap I see isn’t rent collection or maintenance. It’s owners in Nevada, Texas, or Washington who have no idea that their Long Beach duplex is generating a California tax obligation every single month, that someone is legally required to be withholding 7% of their rent checks, and that failing to handle this correctly can mean penalties from two separate tax authorities. This guide walks through the full picture: what you owe, when you owe it, what you can deduct, and where non-resident landlords consistently leave money on the table.

How California Taxes Non-Resident Rental Income: Form 540NR

California’s tax code takes the position that income generated from California real property belongs to California, regardless of where the property owner lives. If you own a rental property in Long Beach, signal Hill, or Torrance and receive rental income from it, that income is California-source income. It is taxable by the state of California under the same progressive rate schedule that applies to California residents.

For 2026, California’s individual income tax rates run from 1% on the first dollar of taxable income up to 13.3% for income over $1 million. As a non-resident, your California return (Form 540NR) is not taxed on your total worldwide income. It is taxed only on your California-source income, which for most out-of-state landlords means your net rental income from the Long Beach property. The California tax rates are not reduced because you’re a non-resident. You pay at the same marginal rates a California resident would pay on the same income level.

How Net Rental Income Is Calculated

You do not owe California income tax on your gross rent. You owe it on your net rental income, which is gross rent minus allowable deductions. Your deductions flow from your federal Schedule E, and California generally conforms to federal treatment for most rental expense deductions. Depreciation, mortgage interest, property taxes, management fees, repairs, and professional fees are all deductible at both the federal and California level. The result: a $2,400/month Long Beach rental generating $28,800 in gross rent might have $18,000 in deductible expenses (including depreciation), leaving roughly $10,800 in net taxable income for California purposes.

CA Withholding at Source: Form 592 and Form 592-B (7% Rule)

This is the most misunderstood part of owning California rental property as an out-of-state landlord, and it is also the most mechanically important. California Revenue and Taxation Code Section 18662 requires the payer of California-source income to withhold 7% of gross payments made to a non-resident when those payments exceed $1,500 in a calendar year. For rental property, this means the property manager, or if you self-manage, your tenant, is legally required to withhold 7% of every rent check before sending it to you.

The practical reality is that self-managing tenants almost never do this correctly, and self-managing landlords often don’t know it’s required. When you work with a professional property management company that understands California law, this withholding is handled automatically. RPM Southland withholds the required 7% from distributions to our out-of-state owner clients, files Form 592 with the FTB each quarter, and issues Form 592-B to each owner at year-end. The owner then claims the withheld amount as a credit against their California income tax liability on their Form 540NR return.

How the Withholding Math Works in Practice

The withholding is not an additional tax. It is a prepayment toward your California tax liability. If your actual California income tax on the rental income is less than what was withheld, you receive a refund from the FTB. If your tax liability is more, you pay the difference. The withholding exists to ensure non-resident landlords don’t simply collect California rental income and pay no California taxes because the FTB has difficulty collecting from out-of-state individuals after the fact.

Federal Tax Treatment: Schedule E, Passive Loss Rules, and $25K AGI Allowance

At the federal level, rental income from your Long Beach property is reported on Schedule E (Supplemental Income and Loss) of your Form 1040. Schedule E captures your gross rents received and then lists out each category of deductible expense. The net income or net loss from Schedule E flows to your Form 1040 as passive income or passive loss, subject to the passive activity rules under IRC Section 469.

California starts from your federal Schedule E and makes conformity adjustments where California tax law differs from federal. In most cases, the adjustments are minor for rental property. The biggest practical difference is that California does not conform to certain federal bonus depreciation provisions and limits, which means the depreciation number on your CA Schedule CA may differ slightly from your federal Schedule E depreciation figure. Your CPA handles this reconciliation. The important point is that both filings start from the same underlying expense records: your property management statements, mortgage statements, property tax bills, and repair receipts.

The $25,000 Passive Loss Allowance

If your Long Beach rental shows a net loss on Schedule E (which is common once depreciation is factored in), you may be able to deduct up to $25,000 of that loss against other income if your adjusted gross income is under $100,000. This allowance phases out completely at $150,000 AGI. Since many out-of-state owners of Long Beach property have AGI well above this threshold, they often find their rental losses suspended, to be used when the property eventually sells. This is a federal rule. California conforms to the passive loss rules, so the same limitation applies at the state level.

Depreciation: Your Largest Deduction and the Recapture Trap at Sale

Depreciation is the single largest tax deduction available to most rental property owners, and it’s one that does not require you to spend any money in the tax year it’s claimed. The IRS allows you to deduct the cost of the building (not the land) over 27.5 years using straight-line depreciation. This is a non-cash deduction that can significantly reduce your taxable rental income, sometimes to zero or even a loss, while your actual cash flow remains positive.

How to Calculate Your Annual Depreciation Deduction

The land value allocation matters. The IRS and the FTB both know that land is not depreciable. Most tax professionals estimate land value using the county assessor’s allocation between land and improvements on the property tax bill, or a formal cost segregation study for larger properties. In Los Angeles County, land often represents 20-30% of assessed value in established neighborhoods. Using too high a land allocation reduces your depreciation deduction. Using too low a land allocation is a red flag for audit.

Depreciation Recapture: The Tax Bill Waiting at Sale

Every dollar of depreciation you claim today reduces your cost basis in the property. When you eventually sell, the IRS taxes the accumulated depreciation deductions at a rate of up to 25% (called unrecaptured Section 1250 gain), separate from the standard long-term capital gains rate on the remaining profit. California taxes the recaptured depreciation at your ordinary California income tax rate, not at a preferential capital gains rate, because California does not have a separate capital gains rate. The depreciation deduction is real and valuable now, but it is not free. It is a deferral that comes due at sale. Understanding this matters when you decide whether to hold the property long-term, execute a 1031 exchange, or sell outright.

8 Tax Deductions Out-of-State Landlords Miss on Their Long Beach Rental ($5K-$15K/Year)

The tax code gives rental property owners a generous list of deductible expenses. In my experience, out-of-state owners who manage their own properties or use unsophisticated management software miss several of these consistently. Every missed deduction is money overpaid to the IRS and the FTB. Here are the categories that come up most often with our non-resident owner clients.

California Property Tax and Prop 13: Annual Cost of 1.1-1.25%

California’s Proposition 13 (1978) is one of the most consequential property tax laws in the country. Under Prop 13, your Long Beach rental property is assessed at its purchase price, and that assessed value can only increase by a maximum of 2% per year, regardless of how much market values climb. For an out-of-state owner who purchased years ago, this creates enormous savings compared to what you’d pay in a state without assessment caps.

The base tax rate under Prop 13 is 1% of assessed value. On top of that base, Los Angeles County adds voter-approved bonds and local assessments that typically bring the effective rate to 1.1-1.25% depending on location and any special assessment districts applicable to your parcel. Long Beach has its own set of special assessments for certain districts. Your actual property tax bill is the most reliable source for your specific rate.

Supplemental Property Tax: The First-Year Surprise

When you purchase a property in Long Beach, you will receive a supplemental property tax bill within roughly six months of close of escrow. This bill covers the difference between the previous owner’s assessed value and your new assessed value for the remainder of the current fiscal year. If you bought for significantly more than the prior assessment, the supplemental bill can be substantial. It is not a recurring annual bill. It arrives once, shortly after purchase, and then your regular annual property tax bill takes over at the new assessment. Out-of-state buyers frequently miss this bill because it goes to the property address, not their out-of-state address, if they haven’t established proper mail forwarding or working with a management company that monitors this.

When Property Tax Reassessment Is Triggered

Prop 13 protections only hold until a “change of ownership” event. Sales, transfers, and certain gifts can trigger full reassessment to current market value. An inherited property is addressed separately under Prop 19 (see the next section). For out-of-state owners who acquire properties through LLCs or trusts, the rules around when a transfer triggers reassessment are nuanced, and a California real estate attorney or CPA should review the entity structure before any transfer occurs.

The Prop 19 Trap for Inherited Long Beach Rentals

Proposition 19, which took effect February 16, 2021, changed the rules for inheriting California property in ways that have created significant and unexpected tax bills for families across Long Beach. If you inherited your Long Beach rental property after February 2021, you need to understand this law precisely, because the tax implications are not theoretical.

A Real-World Prop 19 Example for Long Beach

The Prop 19 reassessment issue is the primary reason I tell every accidental landlord who inherited a Long Beach property to get California-licensed tax and legal advice before making any decisions about the property. The calculus of holding, renting, or selling changes significantly when the property tax is $5,000/year higher than you expected. This is one area where working with a Long Beach property manager who understands the local tax context makes a genuine difference. We can flag these issues during the onboarding process and connect you with the right professionals. Call us at (562) 270-1777 if you inherited a Long Beach property and are sorting through these questions.

CA Filing Calendar: Every Deadline That Matters in 2026

Out-of-state owners who aren’t used to California filing requirements often miss one or more of these dates. Unlike some states where rental income is simply reported on your home-state return with a credit for taxes paid elsewhere, California requires its own separate filings on a separate schedule. Get these on your calendar now.

CA vs. Federal Tax Treatment: 7 Key Differences Including 13.3% Top Rate

Many CPAs who are not California-licensed default to federal treatment across the board and then claim the California credit on the home-state return. This creates errors. California has meaningful differences from federal tax law in several areas that affect rental property owners. The table below covers the most important ones for Long Beach rental owners filing in 2026.

6 Mistakes Out-of-State Landlords Make with California Taxes

I’m direct about these because I see them regularly. Some of these mistakes are expensive. A few can be cleaned up with amended returns. One creates ongoing exposure until corrected. All of them are avoidable with the right professional support.

How RPM Southland Handles Form 592 Withholding for Non-Resident Owners (7% Rate)

One of the reasons our owner retention rate is 95% is that out-of-state owners quickly learn that the administrative burden of owning a California rental from another state is significant when you handle it yourself. The tax compliance piece alone involves quarterly withholding deposits, year-end 592-B issuance, coordinating with your CPA, and monitoring property tax bills. Our management structure absorbs all of that.

“Every property owner should look at their property as an asset and not just what’s the fee a property manager is going to cost me.”
Miles Williams, Broker/Owner, RPM Southland

When you are a non-resident owner in our management program, here is exactly what we handle on the tax compliance side: we calculate and withhold the required 7% of gross rent from your monthly distribution, deposit it with the FTB on the quarterly Form 592 deadline schedule, issue your Form 592-B no later than January 31 each year so your CPA has it before the filing season rush, and flag any property tax bills that arrive at the property address so nothing gets missed. We also provide organized year-end owner statements that break out every expense category your CPA needs for Schedule E preparation: management fees, leasing fees, inspection fees, repair costs with vendor names, and dates paid.

That organization matters because the difference between a tax return prepared from organized records versus one assembled from memory and partial statements is often hundreds or thousands of dollars in missed deductions. “Committing to a property manager is a big, big deal,” as I tell every new owner. “When done right, it can be one of the best things you’ve ever done for your asset.”

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