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.”
@Seth Murray I’m from South Dakota now living in Florida. All of my family still lives in South Dakota. If you love hunting/fishing and money, it’s the best state in the USA. I’m a big fan of all three.
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.
Ah, I see. Makes sense. Thanks for your comments!
Thanks @Troy Albers I tend to agree with you. All South Dakotans are still liable for federal taxes. The benefits we enjoy come from living here. Not a lot of people. A lot of beautiful land. A lot of snow. No state income tax / capital gains tax. It's our best kept secret. Just try not to let the word get out.
There are some tax advantages in South Dakota, but this article is a bit (if not extremely) misleading. There is no state income tax, state inheritance tax, or state capital gains tax in SD. South Dakota laws don't eliminate your requirement to pay any required federal income, inheritance, or capital gains taxes. That said, from purely a state tax perspective, South Dakota has advantages over more highly taxed states, like Virginia. From a real estate perspective, I think you would have to weigh that with things like avg home appreciation in the neighborhoods you're comparing, price to rent ratios, and all the other factors you're evaluating when analyzing a deal. As you build wealth through real estate it may be worth exploring with your tax or family law attorney whether a trust in SD is a good way to help you keep that wealth in your family long term.
I am a Real Estate investor in SD. We aren’t exempt from any federal taxes. We don’t have a state income tax but have great opportunities for Buisness. Our Governor Noem has kept the state open during the pandemic and the state is flourishing with people moving or visiting here. It’s definitely a great place to live and invest!
If you have your business in South Dakota - it can be great as your state income tax would be limited.
If you are a resident outside of South Dakota or have properties outside of South Dakota, the tax benefits of South Dakota are limited/non-existent.