Guest de51 Report post Posted July 28, 2004 I will be selling an out of state property that my LLC owns for about a 150K profit.Do I have to pay taxes to the state the property is in or the state I live in or both? The property is in Arkansas and I live in New Jersey. Also, this is the first time I have sold for a gain. How much of the profit should I set aside for taxes? I'm taking the cash, I don't want to do an exchange. Thanks for any insights! Share this post Link to post Share on other sites
Dave T 0 Report post Posted July 29, 2004 In addition to Federal income taxes, you will have state income taxes to deal with. Each state has its own tax rate for capital gains. You have to check the state tax regs to determine your tax liabilities. As a general rule, income earned from sources in a state is taxable by that state even if you are not a resident. Not all states tax income earned outside the state. You will also have to check if the rules for an LLC change your tax or tax liability in each state involved. In my state (SC), income and capital gains from out of state real estate investments is excluded from SC state taxable income. Therefore, my state will not tax me on out of state income/profits from real estate. On the other hand, the tax regs assume that the other state will tax my income, and therefore SC would have to give me a credit for taxes paid on income derived from out of state sources. So rather than worry about reporting the out of state income, then giving a tax credit for the out of state taxes paid, SC just says forget about it entirely. Care to share with us why you don't want to use a 1031 exchange to defer federal and state taxes on your sale profit? Are you getting out of real estate investing, or, is the out of state property getting in your way of doing an exchange? Here is an example to chew on. A couple of months ago, I entered a 1031 exchange. My relinquished property is out of state property and my sale proceeds are a little over $100K. If I made this a taxable sale, the 15% federal capital gains tax and the 7% state income tax would take $22K of my profit off the table. In addition, depreciation recapture at 25% would add another $2250 to my tax bill. Rather than give the federal and state revenue services $24250, I will apply all that money to the acquisition of my replacement properties in another state. By the way, I had to apply to the Comptroller of the State where my relinquished property is located to get an exception to the state mandatory withholding rules applied at the settlement table for a non-resident owner. Share this post Link to post Share on other sites
Guest de51 Report post Posted July 29, 2004 I'll admit I don't know much about exchanges and need to study up on the matter, but the main reason I wasn't looking to do an exchange is that I'm just starting out and I desperately need a cash infusion for all kinds of non real estate expenses I am facing. Thanks for your help on the out of state taxes. I'll check my NJ tax laws to see how they handle it here. Share this post Link to post Share on other sites
Dave T 0 Report post Posted July 30, 2004 Would a cash out refinance of your investment property provide the cash you need? With a refinance, you can keep the rental income coming in. Share this post Link to post Share on other sites
Guest de51 Report post Posted July 30, 2004 Because of my distance away I do not want to deal with this property anymore. I don't want to deal with tenants, property management companies, etc. I want to be close to my properties and have "hands on." This is impossible with this property now because of where I now live. I wouldn't mind doing the cash out refinance if I lived close by. Share this post Link to post Share on other sites
-Tony- 0 Report post Posted July 31, 2004 Dave T, Her one that sounds the same..... I am in the military a resident of TX (no income taxes) but live in VA. I am in the process of flipping a house (capital will fund 4-5 more). I will seek out a cpa here, but would I pay va tax? Share this post Link to post Share on other sites
Dave T 0 Report post Posted August 1, 2004 Tony, VA does not tax your military income when you are not a legal resident of the state of VA. Since your home of record is TX, no state income taxes are due in VA for income incident to your military service. Now, if you get a part-time job in VA and earn income from sources in the state of VA, then VA does have a legitimate claim to some income taxes from you. If the property you are flipping is located in VA, then you will have to file a state income tax return in VA as a non-resident filer. Probably not the answer you were hoping for. Share this post Link to post Share on other sites
-Tony- 0 Report post Posted August 3, 2004 hey I don't mind paying taxes, heck I wish I had to pay 100k in taxes (I just want to make sure I don't pay what I don't have too....) Share this post Link to post Share on other sites
