Out Of State Investor

Interior Designer · Costa Mesa, CA · Member since 2015 · 5 posts · 1 vote

I have a business partner who lives in Texas and would like to invest 150k into a house flip in California. Does anyone know if he would have to pay CA & Texas Income tax on any profit made??? Any other taxes required to pay besides capital gains??

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Mark Creason

Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes

10y

Originally posted by @Amanda Malson:

Texas does not have an income tax. I believe he would potentially be taxed on his California income in California.

Mark

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Mark Creason
Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
10y
Originally posted by @Amanda Malson:

I have a business partner who lives in Texas and would like to invest 150k into a house flip in California. Does anyone know if he would have to pay CA & Texas Income tax on any profit made??? Any other taxes required to pay besides capital gains??
Texas does not have an income tax. I believe he would potentially be taxed on his California income in California.
Mark
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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@Mark Creason Mark is correct... no tax in Texas as they don't have state income tax. and CA will want its cut of the pie.
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Amanda Malson
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Interior Designer · Costa Mesa, CA · Member since 2015 · 5 posts · 1 vote
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Thanks!!! @markcreason and @jayhinrichs
Would he have to pay CA Income Tax & CA State Tax as well as Texas income tax?? OR would he just pay the CA?
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Mark Creason
Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
10y
Originally posted by @Amanda Malson:

Thanks!!! @markcreason and @jayhinrichs
Would he have to pay CA Income Tax & CA State Tax as well as Texas income tax?? OR would he just pay the CA?
There is no Texas tax on this type transaction. He would owe CA Income tax, if he had a profit.
Mark
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Dave Toelkes
Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
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@Amanda Malson,
As a general rule, flip income is ordinary self-employment income, not capital gains. The federal taxes will be ordinary income plus self-employment income taxes.
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Amanda Malson
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Interior Designer · Costa Mesa, CA · Member since 2015 · 5 posts · 1 vote
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Originally posted by @Dave Toelkes:

@Amanda Malson,
As a general rule, flip income is ordinary self-employment income, not capital gains. The federal taxes will be ordinary income plus self-employment income taxes.
Thanks for the info Dave!!!
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Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
10y
Originally posted by @Amanda Malson:

I have a business partner who lives in Texas and would like to invest 150k into a house flip in California. Does anyone know if he would have to pay CA & Texas Income tax on any profit made??? Any other taxes required to pay besides capital gains??
He would pay tax to CA on the income from there. TX has no state income tax.
[email protected]224-381-2660
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Amanda Malson
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Interior Designer · Costa Mesa, CA · Member since 2015 · 5 posts · 1 vote
10y
Originally posted by @Steven Hamilton II:

Originally posted by @Amanda Malson:
I have a business partner who lives in Texas and would like to invest 150k into a house flip in California. Does anyone know if he would have to pay CA & Texas Income tax on any profit made??? Any other taxes required to pay besides capital gains??
He would pay tax to CA on the income from there. TX has no state income tax.
Thanks Steven!
To be clear, He would pay CA Federal Income tax & CA State tax. Are there any other taxes he would incur on a flip transaction? No capital gains?
Thanks for your help!
Best, Amanda
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Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
10y
Originally posted by @Amanda Malson:

Originally posted by @Steven Hamilton II:
Originally posted by @Amanda Malson:

I have a business partner who lives in Texas and would like to invest 150k into a house flip in California. Does anyone know if he would have to pay CA & Texas Income tax on any profit made??? Any other taxes required to pay besides capital gains??
He would pay tax to CA on the income from there. TX has no state income tax.
Thanks Steven!
To be clear, He would pay CA Federal Income tax & CA State tax. Are there any other taxes he would incur on a flip transaction? No capital gains?
Thanks for your help!
Best, Amanda
Federal income tax and CA tax on the funds. CA does not have it owns Federal income tax. I'm assuming that's a typo.
His portion would be payable as ordinary gains if he is just cutting a check. I'd report it as interest or capital gains. If he is more involved or engages in the activity with regularity it would be treated accordingly as self employment Which could be a good thing from a tax planning standpoint. If he incorporated, and payed himself a salary and made elective and matching deferrals to a solo 401k, HSA, etc.
[email protected]224-381-2660
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Nolan O.
Investor · Tracy, CA · Member since 2015 · 58 posts · 13 votes
10y
And if he's doing this as an LLC member, I believe he would have to register with CA (and pay the $800+ annual fee) for doing business in the state. Check here: https://www.ftb.ca.gov/businesses/New_Rules_for_Doing_Business_in_California.shtml
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