Out of State Income Tax Question - Texas Investor considering Ohio

5 Replies

Hey y'all, I am considering buying out of state in a market that has state income taxes. I live in Texas where we do not have state income taxes. In this case, how does that work? It is my understanding that profit made from an investment out of state will be subject to state income taxes. Just for the sake of numbers lets say I make $100k/year here in Houston. If I buy a property in Ohio and profit $3k on it, am I only taxed on the $1500 (factoring in $1500 depreciation: 3k-1500)? Do they use my total income earned from out of state and in Ohio to determine the basis for my tax (could be a difference of .5% and 5%)? I just need to better understand the tax impacts you guys are having for investing out of state. If anybody invests in Ohio, I would love to hear from you with regards to the state income taxes you pay. Sorry if this email is confusing, I have a bunch of thoughts in my mind... 

First of all I am not a tax person or lawyer and don't play one on tv so you shouid consult a professional in your areas.

I'm sure someone with more properties may be able to better answer your question but here is my experience:

I live in CA where we DO have state income tax and I have rentals in Ohio. I file my rentals on my federal & state returns but Ohio requires that you file an Ohio state return if you profit a certain amount (I want to say $3500/yr of the top of my head but don't quote me, I would need to go look to be sure). It's my understanding that here in CA I could offset on my CA return anything that I pay to Ohio but I haven't had to do that yet as my "on paper" profit has been below the minimum after write offs. I'm assuming (never assume, lol) that since you don't have state tax in TX you would just file an Ohio return if you make over the amount required to file.

Also, the state tax for Ohio would only apply to the income earned on the rental properties in Ohio, not any income you make in TX.

Again, no tax or legal advice given. Good luck and success on your real estate endeavors.

@Raky Patel

After a brief bit of research here I have determined that you most likely should be filing an Ohio income tax return. According to the Ohio Department of Taxation, "every nonresident [of Ohio] having Ohio-sourced income must also file." Income or gain from Ohio property is specifically listed as an example of Ohio sourced income. Website available here: 

http://www.tax.ohio.gov/ohio_individual/individual...

I believe that you would only be responsible to report to Ohio (and pay tax to Ohio) for Ohio sourced income. As you've described it, that would most likely be net operating income from your property(ies) after all allowable business deductions, including interest and depreciation.

When tax is owed to multiple entities, a partial or complete credit is often allowed. For example, in the Cleveland area many of the suburbs are subject to local income tax through the Regional Income Tax Agency (RITA). Cleveland area residents often live in one RITA community and work in another, leading to local tax owed to multiple cities. As a result, the taxpayer typically receives a credit for tax paid to one city resulting in a reduction in the tax owed to another city. There may be similar deductions, credits, or benefits available to you paying state tax to Ohio.

Just like the post above mine states, don't rely on this as credible or actionable legal advice. While I am licensed to practice law in Ohio and also do a good bit of taxation work, every situation has its own unique set of facts. Without talking to you in detail, it's impossible for me to know exactly what you should or shouldn't do. No attorney or CPA, no matter how good, can provide you actionable and reliable information in a setting such as this.

I hope this serves as a good starting point for you to do further research and / or retain a professional to assist you. Feel free to contact me if you need further assistance.

Timothy Murphy III, Real Estate Agent in OH (#SAL.2016005240)
440-941-3846

Many of the surrounding suburbs to Columbus, Ohio also use and file through the RITA system for local tax. It's very confusing for local residents (me) who reside in one RITA suburb and earn income in another. They typically wash each other out, so long as you file and verify with your suburb of residence that you paid into another RITA area. They internally can see and credit this, but you have to initiate that internal review. It is a system with flaws for sure, and could use some streamlining. Not residing in Ohio, most likely multiple RITA forms would need to be filed for each RITA area you earned income. As mentioned above, a good Ohio real estate attorney and accountant is a wise investment. While investing in Ohio is quite lucrative for many, be sure to keep the state and local Uncle Sam's at bay.

Thanks guys, you are all awesome! I think there is a good chance of me buying in Ohio now :). I was just concerned that taxes would be something like $10k for a $50k property because my other income earned in Texas would be counted... That appears to not be the case. 

Hi Rakey,

Thanks for asking the question, I was wondering the same thing,

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