South Dakota Tax Haven

[Seth Murray]

Really interesting article on the tax haven of South Dakota. Any thoughts on how this applies to real estate investment? Seems like you could dramatically increase your net profits when selling properties with no capital gains tax.

“...South Dakota has no income tax, no inheritance tax and no capital gains tax.”

https://www.theguardian.com/world/2019/nov/14/the-great-american-tax-haven-why-the-super-rich-love-south-dakota-trust-laws

[Eamonn McElroy]

@Seth Murray

A couple of points:

--A South Dakotan trust doesn't shield investments from capital gains tax.  A South Dakotan trust generally would file a federal income tax return and potentially pay federal income taxes, including those stemming from capital gains.  The article merely mentioned that South Dakota has no individual or corporate income tax.  Thus no tax on capital gains at the state level.

--The article infers that the SD trust will hold portfolio income producing assets, which is generally sourced and taxed to the home state of the owner.  Real estate has different sourcing rules than portfolio income.  If you have a rental real estate asset in GA and sell it, even if it's owned by a SD trust, GA is going to tax the gain on that sale.

Thus, no real tax advantages but I'm sure there are plenty of legal reasons and other qualitative reasons.