Which state gets to take my money?

Question

Hypothetical: I live in California, I have an LLC in Wyoming, and I buy long-term rental properties under that LLC in   Utah.

Which state collects income tax on the cash flow?

If I were to sell a property, which state collects capital gains tax?

Ben Trageser · Answer

@Nick Hulme accountant here. Utah taxes, California taxes and takes credit for any Utah taxes paid

Nick Hulme · Answer

Would there be any benefit to splitting my income between W2 and 1099?

Basit Siddiqi · Answer

You would report your rental activity to Utah.If you pay any taxes to Utah, California may provide a credit.

Nathan Gesner · Answer

Wyoming doesn't have an income tax.

I believe you would pay taxes in Utah, where the property is owned, and I suspect California has a mechanism for taking their pound of flesh.

Bill B. · Answer

Utah will get paid regardless.

California, being California MAY want to collect additional taxes at their rate after Utah, assuming it’s higher. (Income taxes at California’s rate minus taxes already paid to Utah. Like sales tax on a vehicle bought out of state.). But Utah will definitely want their cut.

I run in to half your problem with a rental and selling a cabin in MN while I live in the free state of Nevada. MN demands their cut AND doesn’t even recognize accelerated depreciation. (Something rarely talked about her.)

Katie Balatbat · Answer

@Nick Hulme

You may want to look into rules for a CA residence and Schedule S for other state tax credit.  Most likely you will be taxed in Utah on the income earned in that state as a non-resident, but then also report the income on your CA return since you're a resident.  CA likely then would give you a credit for any taxes paid on that same income in Utah.  Of course, it doesn't usually work out to a net zero since you're probably in a much higher bracket in CA so ultimately still pay tax at that rate bracket, but some would be to CA and some to the state where the rental is located.  Some states don't have an income tax, so it just depends on your particular circumstance.  You'll want to consult with a good CPA to get advice specific to your situation as these forums are great for general ideas but not a substitute for individualized advice.  Most likely WY would just charge you for the LLC.  You may also want to consider just forming a CA LLC (or UT LLC) to avoid the need to pay and register the LLC in 3 states since CA's definition of "doing business" in CA is so broad.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.