Tax related questions for seasoned investors or cpa

6 Replies

I am looking into buying a long distance rental property. I was wondering what are the tax regulations. Will I be double taxed, once in my home state and the other time at the state where the actual property is? 

I would like to account for a tax expense in my property analysis. 

Thank you in advance. 

For your analysis, I would just focus on property tax, which is hard to avoid.   You will pay property tax in the state where the property exists.  

Income tax is a different story but something you have more control over in real estate investing.  If you do it right, you can defer income tax effectively forever.  If you buy right, you shouldn't be paying income tax while you own the property.

@Rob Ko

The answer to this question depends on several factors - the general guideline is that you will not be faced with double taxation at the state level. States provide a credit for taxes paid to another state.

However, there are some things to take into consideration - will your rental property generate income or a loss?
Does the state you live in a gross income state(only factors positive income factors) or does it factor both income and losses to come up with AGI.

Thank you very much Basit for your reply. My property will generate an income, at least that's the plan :-)

For instance I have an income property in Hawaii and every month I have to pay GE Tax on whatever griss income it makes. It is 4%. If I would have another property in other state how would that work? 


Thank you very much in advance. Appreciate your time!!!

Originally posted by @Basit Siddiqi :

@Rob Ko

The answer to this question depends on several factors - the general guideline is that you will not be faced with double taxation at the state level. States provide a credit for taxes paid to another state.

However, there are some things to take into consideration - will your rental property generate income or a loss?
Does the state you live in a gross income state(only factors positive income factors) or does it factor both income and losses to come up with AGI.

Aloha @Greg Scott  ,

Thank you very much for your time and knowledge. Would you mind pointing a right direction as far as article or other resource where I could find out more about the strategy of not paying income tax? I would greatly appreciate it.

Thank you in advance

Rob


Originally posted by @Greg Scott:

For your analysis, I would just focus on property tax, which is hard to avoid.   You will pay property tax in the state where the property exists.  

Income tax is a different story but something you have more control over in real estate investing.  If you do it right, you can defer income tax effectively forever.  If you buy right, you shouldn't be paying income tax while you own the property.

@Rob Ko

I'm not trying to sound rudimentary, but there are many, many resources on this topic.  Google these things:

 - Depreciation (residential property) - a non-cash expense

 - Segregated cost analysis (and associated depreciation schedules)

 - 1031 Exchange

 - Step up basis for real estate inheritance

It's not hard to avoid income taxes in real estate.  

@Greg Scott


Thank you very much for your reply, I really appreciate it. I think I got little confused. I think all that you listed is on Federal level. But again I am not an expert and I probably didn't express myself well.
I was more concerned about state taxes. For instance I live in Hawaii and we have G.E. Tax here. Hawaii doesn't have a sales tax, but it does impose the general excise tax (GET) “at every level of transaction on goods and services… .” The GET is 4%throughout most of Hawaii, and 4.5% on Oahu,but the state allows a business to charge their customers a maximum of 4.712% to help recoup some of their total GET.
So, my question is if I would have to pay that twice, here in Hawaii and somewhere where I will acquire the rental property. 

If you are familiar with this I would greatly appreciate your advice.

thank you


Originally posted by @Greg Scott:

@Rob Ko

I'm not trying to sound rudimentary, but there are many, many resources on this topic.  Google these things:

 - Depreciation (residential property) - a non-cash expense

 - Segregated cost analysis (and associated depreciation schedules)

 - 1031 Exchange

 - Step up basis for real estate inheritance

It's not hard to avoid income taxes in real estate.