Out Of State Investor

10 Replies

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??

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

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

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!!! 

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.

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

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.

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