I sold a home in another state--do I have to pay tax?

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I sold a home in another state--do I have to pay tax?

Amy Turnbull
Dalton, MA · Member since 2017 · 38 posts · 8 votes

I appreciate responses about this. I don't want to get dinged next year or whenever if I need to pay sales tax. I mean, I have paid my income tax but pretty sure Massachusetts wants a piece of the action!

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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
6y

Your tax questions here, and after the fact, are a bit disturbing. These are questions an investor should be asking their accountant BEFORE the investment was made. None the less, if you reside in CA and invest in another state, you will pay your federal income taxes for any profits (for flips) or capital gains (for buy and holds over 1 year where intent was to buy and hold) and you will pay CA state income taxes as well. Additionally, you should have an entity formed in the state in which you invested which would hold the asset and as such, file a return for it. Typically, if an OLC was used for buy and hold, you would have a K1 from that LLC which "passes through" to your personal tax return.

I Strongly urge you to seek professional tax advice rather than asking this question on an open forum from non tax professionals. I am not a tax professional and as such, this should not be co trued as tax or legal advice, just my experience from investing from CA out of state.

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  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    6y

    You wont be taxed twice, you'll just be paying taxes where the transaction occurred. 

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  • Bryan Devitt
    Contractor · Oxford, MA · Member since 2018 · 807 posts · 745 votes
    6y

    If it is like normal income taxes then you pay for the transaction in the state the business was done, but if the tax would have been higher in MA then you need to pay them the difference. You should definitely talk to a MA CPA though 

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  • Amy Turnbull
    OP
    Dalton, MA · Member since 2017 · 38 posts · 8 votes
    6y

    This still doesn't answer my question--maybe I should be more specific: do I have to pay sales tax on the sale of this property?

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    @Amy Turnbull  Do you mean sales tax the same as if you bought something from a store?  If that's what you mean, the answer is no.

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  • Michael King
    Rental Property Investor · Navarre, FL · Member since 2019 · 913 posts · 640 votes
    6y

    Not an expert but I would say MA gets none from the sale out of state.The IRS probably wants their cut of capital gains. Was it used as a rental and depreciated? There might be recapture on that. More info required, but best to get your CPA in on it. 

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  • Amy Turnbull
    OP
    Dalton, MA · Member since 2017 · 38 posts · 8 votes
    6y

    I live in Los Angeles. I travelled to Massachusetts to sell the house.

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  • Howard HerringtonPro Member
    Realtor · Boston, MA · Member since 2014 · 159 posts · 75 votes
    6y

    Amy, if you live in one state and sold property in another state, you should report the transaction to that state.  A state can typically tax a non-resident on income that is sourced to that state, however you can deduct things such as Private Mortgage Insurance, closing costs, pro-rated taxes and interest, and any commissions.

    Now, I am not expert by any means on this so you should speak with a CPA.  If I am not mistaken, for California, If you own property in any other state, you would have to also report that gain to California as well but again, check with a CPA.

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  • Amy Turnbull
    OP
    Dalton, MA · Member since 2017 · 38 posts · 8 votes
    6y

    Thank you, Howard! Now I'm wondering if I should have paid taxes on the rental income! I will definitely check into this going forward with my new duplex! Appreciate you and others taking the time to weigh in!

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  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    6y
    Originally posted by @Amy Turnbull:

    Thank you, Howard! Now I'm wondering if I should have paid taxes on the rental income! I will definitely check into this going forward with my new duplex! Appreciate you and others taking the time to weigh in!

     If you owned a rental in mass even though you didn't live there you should have been filing a mass tax return each year. 

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  • James E.
    Investor · Boston, MA · Member since 2014 · 232 posts · 165 votes
    6y

    @Amy Turnbull good idea to get feedback here, but this is something you should be engaging an accountant for. Can probably source some good leads here and I won't muddy the waters with my suggestions, but I would get professional tax advice and help with filing your returns. 

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    6y

    Your tax questions here, and after the fact, are a bit disturbing. These are questions an investor should be asking their accountant BEFORE the investment was made. None the less, if you reside in CA and invest in another state, you will pay your federal income taxes for any profits (for flips) or capital gains (for buy and holds over 1 year where intent was to buy and hold) and you will pay CA state income taxes as well. Additionally, you should have an entity formed in the state in which you invested which would hold the asset and as such, file a return for it. Typically, if an OLC was used for buy and hold, you would have a K1 from that LLC which "passes through" to your personal tax return.

    I Strongly urge you to seek professional tax advice rather than asking this question on an open forum from non tax professionals. I am not a tax professional and as such, this should not be co trued as tax or legal advice, just my experience from investing from CA out of state.

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  • Amy Turnbull
    OP
    Dalton, MA · Member since 2017 · 38 posts · 8 votes
    6y

    Thank you, Will. Good advice!

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  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Will Barnard:

    Your tax questions here, and after the fact, are a bit disturbing. These are questions an investor should be asking their accountant BEFORE the investment was made. None the less, if you reside in CA and invest in another state, you will pay your federal income taxes for any profits (for flips) or capital gains (for buy and holds over 1 year where intent was to buy and hold) and you will pay CA state income taxes as well. Additionally, you should have an entity formed in the state in which you invested which would hold the asset and as such, file a return for it. Typically, if an OLC was used for buy and hold, you would have a K1 from that LLC which "passes through" to your personal tax return.

    I Strongly urge you to seek professional tax advice rather than asking this question on an open forum from non tax professionals. I am not a tax professional and as such, this should not be co trued as tax or legal advice, just my experience from investing from CA out of state.

    Is it normal for states to tax their citizens on income *made in a different state* or is that just one of the many perks of living in CA?

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  • Amy Turnbull
    OP
    Dalton, MA · Member since 2017 · 38 posts · 8 votes
    6y

    Update: I did not claim the income in Massachusetts as per the advice of my tax preparer.

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  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    6y

    @Amy Turnbull  Is your tax preparer a CPA?  Did he just advise or say why?

    As others have said if this is ownership or an LLC you normally need to file in the state you generate the income in, every year. If your state tax is lower then the 5% MA charges you will pay the difference to MA. If your state tax is higher well MA gets nothing. If you paid tax on the income in CA not sure if MA will have an issue. Maybe you paid tax in CA and it was higher so he said don't file?

    @Brian G. it is normal in every state. You file a non-resident return.   

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  • Amy Turnbull
    OP
    Dalton, MA · Member since 2017 · 38 posts · 8 votes
    6y

    I paid state tax in California. I'm not sure what percentage. 

    I will continue to research this, going forward.

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    6y
    Originally posted by @Amy Turnbull:

    I paid state tax in California. I'm not sure what percentage. 

    I will continue to research this, going forward.

     It seems like you got incorrect advice from your accountant.

    You were required to file income taxes in MA every year that you had a rental property in that state. You may also be hurting now because you didn't file a state tax return in those years because now you lose out on claiming the losses allocated to that state.

    Your accountant likely didn't want to file in MA because he would have to pay an additional cost to file there...or he was grossly negligent(or both).

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  • Amy Turnbull
    OP
    Dalton, MA · Member since 2017 · 38 posts · 8 votes
    6y

    Thanks for replying. I bought another house. Next year I'll find an accountant with more experience in real estate!

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  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    6y

    The simple answer to "Do I have to pay tax" is..... YUP..... The tougher question is... How can I mitigate my taxes when I sell a house?

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