Living in California and looking to invest in Nevada

7 Replies

Hi,

I am looking to purchase a couple rental properties in Nevada, living in California the taxes here are crazy and i want to pay as little as legally possible. If i bought a property in Nevada how would i go about paying very little taxes, is there a way to avoid paying California taxes for rental income coming from a no state income state?

I am a Californian, I can tell you we are all stuck with paying California tax. The rental income you earn in Nevada will be treated as California source income since you are a California resident. Let's say you want to invest in other state with a lower tax rate, you have a file an out of state non-resident tax return, and get a state tax credit on your CA tax return (Form 540). Any form of income that you realize is going to be taxed in California because you are a CA resident. 

Originally posted by @Sharon H. :

I am a Californian, I can tell you we are all stuck with paying California tax. The rental income you earn in Nevada will be treated as California source income since you are a California resident. Let's say you want to invest in other state with a lower tax rate, you have a file an out of state non-resident tax return, and get a state tax credit on your CA tax return (Form 540). Any form of income that you realize is going to be taxed in California because you are a CA resident. 

Even if I put the property in a LLC?

@Michael Batshon

Actually, putting it into an LLC will make it worse. You will become liable for the $800 annual tax for the LLC - another perk of being a Californian. You can't avoid paying CA, sorry. They tax everything.

Come to Texas, my friend.

@Michael Batshon

If you bought rental property in say, Las Vegas, and live in Southern California, there is a good chance you will have a negative amount on your schedule E (rents/royalties). The main drivers of deduction will come from interest if loan, depreciation, mileage, repairs, maintenance, hoa, taxes, and insurance. You should be at net loss around 2-3k. You will have depreciation recapture when you sell, but that's down the road.

Terry

Originally posted by @Terry Lao :

@Michael Batshon

If you bought rental property in say, Las Vegas, and live in Southern California, there is a good chance you will have a negative amount on your schedule E (rents/royalties). The main drivers of deduction will come from interest if loan, depreciation, mileage, repairs, maintenance, hoa, taxes, and insurance. You should be at net loss around 2-3k. You will have depreciation recapture when you sell, but that's down the road.

Terry

I knew that, i have 2 rentals currently in California, my goal was to try to figure out how to pay taxes, but California always wins with that. 

@Michael Batshon

If you buy rental property in NV where there is no state income tax, the rental income earned from that state would be sourced to NV and then you would need to file an income tax return for that state and pay taxes on just the rental income sourced to the rental property located in that state.  Since you are a California resident, you are taxed on ALL your income in California, no matter where earned or sourced, and then you get an offsetting tax credit for any taxes paid to other states.  Since Nevada has no income tax.... you don't pay any income taxes to NV... means you get no credit in CA for other state tax credit.  Therefore, your rental income from NV property will be fully taxable in CA.  You would have to become a NV resident to avoid CA taxing it.

Agree also that an LLC makes it worse for you because you would have to register your LLC in CA whether you create it in CA, or if you create it in NV and register it as foreign in CA. Either way you will be subject to an $800 minimum tax PLUS paying taxes at your ordinary rates on your 1040 for the pass through nature of the rental income. There may be other reasons to create an LLC but if you're purely looking at tax effects, you will pay more with an LLC.

Perhaps look into the section 199A pass through deduction that is brand new to see if you can get a tax break from that.

*This post does not constitute legal advice and is not to be relied upon.  Readers are advised to seek professional advice.  This post does not create an attorney-client or CPA-client relationship.

@Michael Batshon

Maybe you're missing a good point made by @Terry Lao . California, as ridiculous as it is with its tax laws, luckily taxes net income from renting - i.e. rent minus deductions minus depreciation. If the result is negative - then you're not paying any additional tax to CA and may, in fact, pay less tax to CA.

Where CA will always get you is when you either have a positive net (after all expenses) income from renting or when you sell this property.