holding notes in different states under one LLC

6 Replies

Hello all,

I'm new in the notes business and I have an opportunity to buy a pool of 4 notes in different states. I'm wondering whether it's possible to keep all of them under my LLC which is in Florida. It means that I will not pay any state tax for them although they are located in states where there is tax.

thanks

There is no problem holding notes secured by collateral properties in different states in a single business entity (LLC). The income you receive is taxed based on the location of your business entity, not the location of the collateral properties securing the notes.

Promotion
Vacasa
Vacation Rental Property Management
We do the work. You get the ROI.
We do it all for your vacation rental. All—marketing, pricing, guest requests, housekeeping & more.
Free income estimate

So as not to over generalize I would ask a CPA before extrapolating that part about where the biz entity is based. I think it's where you earn the income that matters as well as where you reside. In your case your fine because you live in Florida but I don't think I could live in PA for example (income tax state), set up an entity I Florida (no state income tax) and hold a note in NY (income tax state) and expect not to pay income taxes. I believe its based on the states where you are earning the income (so the 4 different states you are holding the notes) in addition to your state of residency. But CPA advice is welcome here

This is an interesting question.  I had been avoiding buying notes in a state where I am not already paying state income tax (due to rentals in the state).  If it is solely dependent on where I live, I am glad to be in Texas!

The income received from the notes is treated as investment property - similar to the way dividends from mutual funds are taxed.  Therefore, it is only taxed in the resident state of the investor.  If you are a resident of Florida, you will not pay state income taxes on the interest received from the notes.

To further @Matt Wills comment, yes you are taxed on that income in the state of the investor or his/her entity, but if you foreclose on the note and then resell the property, you may owe taxes in that state and may need to register as a foreign entity in the state where the property is located. @Ilana Lavie you are correct that you can hold them in your LLC and other than having to pay income tax on interest income which is subject to your local taxes in FL and of course, federal taxes.