CA Resident Looking to Invest out of State

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CA Resident Looking to Invest out of State

Sunny A.
Cupertino, CA · Member since 2016 · 15 posts · 4 votes

Hello,

I’m looking to invest out of state. Below is a list of questions I’d like to get advice on to determine how best to proceed. Would appreciate any feedback!

1. Should I incorporate in the state I will own and rent the property in as a single member LLC? Or should I operate as a sole proprietor and get an umbrella insurance policy instead?

2. Will I have to additionally pay CA franchise tax of $800 / year?

3. Should the property deed be under my name, or if incorporating under the LLC?

4. I would like to do a cash out refi after seasoning the property (BRRR).

a. Should I own the loan in my name, or if incorporating, in the LLC's name?

b. Can I count refi mortgage interest as a business expense?

c. Are there any limits on the interest deductions (e.g., due to new Trump tax plan)?

5. Should I deduct depreciation?

6. Can I treat property tax as a business expense? Is there any limit due to new Trump tax plan?

7. Will I be double-taxed on rental income by CA and by the state where I own the rental property?

8. Anyone know a good lawyer and CPA in the Bay Area who would be able to help me with:

a. Forming an LLC if necessary

b. Navigating contracts with out of state property purchases and out of state property management

c. Accounting and filing taxes

Many thanks!

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Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
8y

@Sunny A.

Hopefully this helps some, I can tell you that OOS isn't that hard or much different than buying locally when it comes to the process. What's time consuming and hard is understanding the market like you live there.... A good PM/Realtor/Lender can make a HUGE difference in your progress and ability to find deals.

1. Should I incorporate in the state I will own and rent the property in as a single member LLC? Or should I operate as a sole proprietor and get an umbrella insurance policy instead? Unless you have extremely high net worth or some special circumstance... get the umbrella (just my opinion).

2. Will I have to additionally pay CA franchise tax of $800 / year? Yes, if you do LLC

3. Should the property deed be under my name, or if incorporating under the LLC? Easier under your name.

4. I would like to do a cash out refi after seasoning the property (BRRR).

a. Should I own the loan in my name, or if incorporating, in the LLC's name? Easier under your name... but cash outs eat up a lot of equity if you didn't get good appreciation.

b. Can I count refi mortgage interest as a business expense?

c. Are there any limits on the interest deductions (e.g., due to new Trump tax plan)?

5. Should I deduct depreciation?

6. Can I treat property tax as a business expense? Is there any limit due to new Trump tax plan?

7. Will I be double-taxed on rental income by CA and by the state where I own the rental property?

8. Anyone know a good lawyer and CPA in the Bay Area who would be able to help me with:

a. Forming an LLC if necessary

b. Navigating contracts with out of state property purchases and out of state property management This is pretty easy and straight forward..... unlikely you'd need a lawyer unless you went really complex.

c. Accounting and filing taxes

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  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    8y

    @Sunny A.

    Hopefully this helps some, I can tell you that OOS isn't that hard or much different than buying locally when it comes to the process. What's time consuming and hard is understanding the market like you live there.... A good PM/Realtor/Lender can make a HUGE difference in your progress and ability to find deals.

    1. Should I incorporate in the state I will own and rent the property in as a single member LLC? Or should I operate as a sole proprietor and get an umbrella insurance policy instead? Unless you have extremely high net worth or some special circumstance... get the umbrella (just my opinion).

    2. Will I have to additionally pay CA franchise tax of $800 / year? Yes, if you do LLC

    3. Should the property deed be under my name, or if incorporating under the LLC? Easier under your name.

    4. I would like to do a cash out refi after seasoning the property (BRRR).

    a. Should I own the loan in my name, or if incorporating, in the LLC's name? Easier under your name... but cash outs eat up a lot of equity if you didn't get good appreciation.

    b. Can I count refi mortgage interest as a business expense?

    c. Are there any limits on the interest deductions (e.g., due to new Trump tax plan)?

    5. Should I deduct depreciation?

    6. Can I treat property tax as a business expense? Is there any limit due to new Trump tax plan?

    7. Will I be double-taxed on rental income by CA and by the state where I own the rental property?

    8. Anyone know a good lawyer and CPA in the Bay Area who would be able to help me with:

    a. Forming an LLC if necessary

    b. Navigating contracts with out of state property purchases and out of state property management This is pretty easy and straight forward..... unlikely you'd need a lawyer unless you went really complex.

    c. Accounting and filing taxes

    1Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    8y

    @Sunny A.

    1. Umbrella Insurance policy vs LLC is likely a topic that you want to speak to your attorney with. This topic has been discussed on BP many times and looking at some of the old posts will give you a suggestion on what you should do.

    2. Yes - You may be subject to the $800 year tax if you operate through an LLC. California considers you do be doing business in the state of California if you make decisions in the state(example - deciding to invest in a house in Nevada is considered doing business in CA if your "home office" is in CA and you made the decision there).

    3. If you have an LLC - you should have the property in the name of the LLC. Otherwise you may not be getting any benefits from having an LLC.

    4A. Same as 3
    4B. Interest deductions can be a deduction if the proceeds are used for a business purpose(in this case the rental)
    4C. TBA

    5. Yes

    6. Property taxes are a business deduction. The item discussed in the new tax plan relates to Schedule A for home owners.

    7. If you have property in another state; you will be responsible for filing a state return where the property is located unless the state does not have an income tax.
    California will provide you a credit on the california tax return for taxes paid to other states.

    8. There are many tax advisers here on BP who work with client's remotely. You should interview a couple to see if it would be a good fit for you.

    [email protected]917-280-8544
    Basit Siddiqi CPA4.979 Reviews
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  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
    8y

    @Sunny A. re: #7 you won't be double taxed.  Either CA will give you a credit for taxes you paid to the other state (more common), or you will take a credit in those other states for taxes you paid to CA on that income (less common).

    Clarita CPA Group516 Reviews
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    1Reply
  • Sunny A.
    OP
    Cupertino, CA · Member since 2016 · 15 posts · 4 votes
    8y
    Thank you all for the advice!
    0Reply
  • Alyssa Dyer
    Rental Property Investor · Oklahoma City, OK · Member since 2017 · 1k+ posts · 694 votes
    6y

    @Sunny A. did you end up getting things up and running? I've developed a relationship with an incredible real estate-focused attorney that I've been referring everyone to! It's a premium upfront, but getting things set up correctly really pays off in the long run! Hope all is well!

    1Reply
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