Tax Liability for Private Money Lending

3 Replies

Is an out of state private money lender taxed twice on the interest income? If so, what are some ways around that. I have someone who is interested in investing in one of my projects who lives in Illinois and I am in Georgia. He was told he would be taxed twice and therefore doesn't feel it would be a worthwhile investment. I don't believe he's lending out of an IRA or 401k but could very well deposit proceeds in to one of those account types. Please advise.

@Cynthia Walker

Not sure what he means by "twice." On a federal level, he pays the same taxes no matter where he is and where the project is. As an IL resident, he will owe state tax to his home state. In addition, he might owe income tax to GA as a non-resident, since the money is sourced in GA. However, this tax may be minimal or even zero.

@Cynthia Walker

Loan from an Ira and you won’t be taxed in either state or federally. You May be taxed when you withdraw it by the feds and possibly the state you live in -if it isn’t a Roth. 

If it’s a Roth you will never be taxed. 

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Originally posted by @Cynthia Walker:

Is an out of state private money lender taxed twice on the interest income? If so, what are some ways around that. I have someone who is interested in investing in one of my projects who lives in Illinois and I am in Georgia. He was told he would be taxed twice and therefore doesn't feel it would be a worthwhile investment. I don't believe he's lending out of an IRA or 401k but could very well deposit proceeds in to one of those account types. Please advise.

 Generally, the income that is taxed in one state will not be taxed again. If not, do you think all the multistate businesses pay tax to every state for the same income?