I am wondering what other peoples’ experiences are with taxes stemming from living in state A and buying/selling land in state B. Since most of us are land flippers, we likely fall comfortably into dealer status in the eyes of the IRS. So the net proceeds get taxed as income. Do I pay the state income tax in my home state for this and thats it? Does the other state income tax rate ever matter? If the latter is no, then i would hope i wouldnt need to file a return in the state where the investments reside too! What are peoples’ experiences with this? Trying to estimate how much to set aside for taxes (federal income, self employment, and state are the ones im aware of).
@rmiller1291 at the federal level, I have to pay taxes on my income regardless of what state it’s in. I also have to pay state income taxes based on whatever state the property is in (my accountant files a state tax return in those states, which isn’t terribly difficult).
Keep in mind, not all states require income tax, so you might luck out if your properties are in one of those.
@retipsterseth thanks! Do you also pay the tax in your home state (i.e. double tax)? I have seen that some states offer a tax credit when you pay tax in another jurisdiction (e.g. out of state) to help avoid the double tax
@rmiller1291
For conversation purposes, I’m not sure I agree with this.
I live in Michigan. My land transactions take place in Michigan. I am doing business in Michigan. Just because the asset (land) is in Arizona doesn’t doesn’t mean I earned income in Arizona. I am just buying and selling an asset that is located in Arizona.
Google: Does Arizona have a state income tax;
The state of Arizona requires you to pay taxes if you’re a resident or nonresident that receives income from an Arizona “source”
The land is not the source of the income. It is the asset involved in the transaction that is taking place in Michigan.
How are you measuring this? Are you and the other party to the transaction and the title company and the county recorder and every other component in Michigan?
I would ask your accountant about this to be sure. I’ve always seen this determination made based on the property location, not where I or the other party are located.
@donyost Here is one example: County in Arizona, seller in Florida, me in Michigan. No title company, self closing. Then when I sold, the buyer was in Michigan and again was self closing.
I will be inquiring again this year as I get my taxes done.
If I remember, I will post the answer here.
@gfraserl for what it’s worth, I remember having this exact same dilemma years ago. We even got into a debate about it in one of my early mastermind groups, because I didn’t understand what constituted “doing business” in a particular place as it related to taxes.
All I can say for sure is, whenever I do a deal in a particular state (whatever state that happens to be), it triggers the need to report it to that state’s taxing authority in the year when I sold the property and made my profit.
It doesn’t matter where I am, where the seller is, where the buyer is, or where the title company is. It all comes down to where the subject property is, probably because that’s the asset upon which everything is based (that property and its location is how the money is made).
As always, though, I’m open to being wrong. If your accountant says anything to the contrary, I’d love to hear their feedback.
@retipsterseth@donyost@rmiller1291
I know it has been a while since this topi cam up, but I promised tp post the response from my CPA. Here it is: (You guys are correct in your assumptions, see below)
Hi Gary
The taxation of real estate is based on the location of the assets. So you would need to file a Arizona and a New Mexico income tax return personally.