The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Murse on September 28, 2016, 12:33:40 PM
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I am considering buying out of state real estate, I am curious how taxes are done in these situations. Thanks.
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I file a return for the state where my property is located and one where I live. I attribute only my income from the property state to that state, and my other income to my home state. I report the income taxable to the rental state on my home state return (taxes paid to another state). Thus, two state returns (or more if you need them).
For federal it rolls up.
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I file a return for the state where my property is located and one where I live. I attribute only my income from the property state to that state, and my other income to my home state. I report the income taxable to the rental state on my home state return (taxes paid to another state). Thus, two state returns (or more if you need them).
For federal it rolls up.
So you end up paying state income tax twice on the property?
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This is state specific. In my state, for earned income you are taxed in both the states, but you get a credit for taxes paid to the other state so it can work out. Rental income is treated differently and we can exclude that from the income in my home state.
No matter what, you will file a tax return in the state where the property is located and pay any tax on the rental income there. Step Two would be to research the tax laws in your home state to see how to treat that income.
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How do you keep records for taxes?
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I had a complicated situation a few years ago. I lived and worked in Ohio. My wife lived in Ohio(with me) and worked in Northern Kentucky. We owned rental property in Ohio and Maryland where she used to live. We had to fill out 3 state tax forms. Ohio and Kentucky have some sort of deal so we only had to pay once on her income, but the trick was Maryland. They kept wanting our earned income instead of just our rent income. Fortunately, I had an accountant and let her deal with it. I am glad that we sold the properties though.
Brian
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How do you keep records for taxes?
I keep a file folder for rental that everything gets placed in for the tax year. The more organized you are the easier it is to get everything to your CPA when the time comes.
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How do you keep records for taxes?
Open a separate bank account for the rental property. Run the business income and expenses through there only. You bank statements and canceled checks will be your records and you can use those to create financial statements.
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I'm a bit more of a complicated scenario
My wife and I live/work in Virginia.
I'm a Florida Resident and we own a rental property there.
My wife is a Maryland Resident and we own a rental property there as well.
We also own some farmland up in Michigan we rent out as well.
Being military we are not required to change our residency to Virginia.
We end up filing State income taxes for Maryland and Michigan for the rental income in those states. Florida does not have income tax (unless you fall into pretty specific categories) so we do not file there. Federal rolls it all up as one.
For the longest time I did my own taxes, but at a certain point it was becoming too complex given all the variables with different states, rental income, investment income, ect...so we started using a CPA. This was the right choice for us and the cost is well worth it. It is also really nice to have someone familiar with our situation that we can call and run tax questions by.
If you are concerned with how to do taxes in another state then I personally would recommend finding a CPA that is familiar with the situation you are considering getting into. You could very well take care of all this on your own as well and save the cost, but that is going to depend on you, how much time you have to devote to it and what your time is worth.
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I live in Virginia and pay my property taxes to TN via webportals (City has theirs & County has theirs). They also send out notices for taxes every year which should come out any day now.