I have a client that was an Arizona resident with an Arizona rental property for several years. He built up suspended losses for quite some time and then moved to California in 2017. In 2018, he sold the rental property as a California resident. Of course the Franchise Tax Board would like to view the gain as taxable income. My question is the following:
Is there a way for California to allow all of the prior suspended Arizona losses, or are they just forfeited? It seems unfair to just lose them, but I can see California’s argument that those losses were not from a California sourced asset and so the losses are unrelated to California taxes too.