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Tax Question - Sold investment property in TX but live in CA

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rated:
Hi everyone.
I just sold an investment property in TX. Bought for $150k about 10 years ago, sold for $250k. I have a pretty good grasp on the federal tax implications, being sale price minus purchase price and improvements, to be taxed at an estimated 15% capital tax gains rate. I am aware that I will have to account for depreciation recapture as well.
I am completely lost with state taxes. I know TX does not have a state income tax. I am wondering if I will need to report/pay taxes for the home sale on my CA tax returns and if so, how much (roughly) to set aside for CA state taxes? Might sound crazy but I was hoping is no CA state tax implication considering the home was in TX. If I am wrong in that thought, should I assume the sale will be taxed in CA as regular income?
Any help would be appreciated.

 

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Form 1099 contains no information regarding the state in which the amount reported was earned.
VA taxes all income earned... (more)

jhburgess (Jul. 14, 2017 @ 4:47a) |

I never said I was a resident, just that I had to pay income taxes to both of these states.  (8-12 month contracts)  Bot... (more)

RedWolfe01 (Jul. 15, 2017 @ 5:16a) |

The reason the form specifically excludes it is because you were a nonresident. It would be unconstitutional for a state... (more)

marginoferror (Jul. 15, 2017 @ 2:31p) |

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rated:
Short answer is yes, if you are a CA resident then you will be state taxed as regular income on your TX investment property gains. CA would credit you any state tax due to TX, but since TX is state tax free, CA will get their full amount.

Sorry to break the news. As a CA resident you owe tax on income regardless of where it is earned.

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CA will make sure to grab every penny of tax due to them. You cannot even believe the lengths CA tax revenue dept will go to strong_arm you in paying all you are due. I'm not saying they are doing something illegal instead what I'm saying is they have tax code written so strongly in their favor to cover every such corner scenario that's possible.

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Thank you both for your quick yet sad news!

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Unlike Federal taxes, capital gains are treated as ordinary income in California. Figure out your actual taxable gains are, then multiply by your state income tax rate (varies by income level from 1% to 13.3%).

As for whether you need to report and pay taxes on out of state income, the general answer for California is "yes." Just like the Federal tax system, California state law indicates income tax is due on worldwide income (and deductions are usable for worldwide losses).

If you have additional questions or think your situation is unique/uncommmon, recommend hiring a CPA or tax advisor.

rated:
dealgain said:   CA will make sure to grab every penny of tax due to them

CA is the most desirable state in the union. Do you think it would be free to live here? If it werent for our cost of living, half of the country would move here. TX on the other hand....

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You should've moved back to Texas before selling the property.

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But then you would have to live in TX.

You made a nice windfall and got to Live in CA while doing it.

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coastesque said:   
dealgain said:   CA will make sure to grab every penny of tax due to them

CA is the most desirable state in the union. Do you think it would be free to live here? If it werent for our cost of living, half of the country would move here. TX on the other hand....

  Well, that plus the earthquakes... and the mudslides... and the wildfires...  and the droughts.  Oh, yeah, and Jerry Brown.

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fw9999 said:   
coastesque said:   
dealgain said:   CA will make sure to grab every penny of tax due to them

CA is the most desirable state in the union. Do you think it would be free to live here? If it werent for our cost of living, half of the country would move here. TX on the other hand....

  Well, that plus the earthquakes... and the mudslides... and the wildfires...  and the droughts.  Oh, yeah, and Jerry Brown.

  eh, could be worse. could be TX.

rated:
New York is as bad as California.   Harbert Management, an Alabama-based  money manager for large public employee pension funds including CALPERS, foundations, and endowments  recently  paid $40 million to settle New York's grab for tax dollars.  New York claimed that one of Harbert's funds earned investment income as a result of activity performed in New York and thus should have paid taxes to New York on those earnings instead of paying their much lower state income tax in Alabama.  The unidentified whistle blower who tipped off New York is going to get 22% (nearly $9 million) of the settlement for alerting New York.

Harbert Management Pays $40 Million to Settle With New York Over Taxes - article here: http://www.usnews.com/news/us/articles/2017-04-18/harbert-management-pays-40-million-to-settle-with-new-york-over-taxes 

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don't forget quarterly tax payment (based on your gain)

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fw9999 said:   
  Well, that plus the earthquakes... and the mudslides... and the wildfires...  and the droughts.  Oh, yeah, and Jerry Brown.

  

Could be (will be?) worse, at least Brown isn't Gavin Nuisance.

rated:
coastesque said:   
dealgain said:   CA will make sure to grab every penny of tax due to them

CA is the most desirable state in the union. Do you think it would be free to live here? If it werent for our cost of living, half of the country would move here. TX on the other hand....

  That's laughable.  Population growth in California is about as low as it's ever been.

Only sounds like a good location to me if you love government involvement in your life.  I suppose some people need / like that.

rated:
ChinaRider said:   coastesque said:   
dealgain said:   CA will make sure to grab every penny of tax due to them

CA is the most desirable state in the union. Do you think it would be free to live here? If it werent for our cost of living, half of the country would move here. TX on the other hand....

  That's laughable.  Population growth in California is about as low as it's ever been.

Only sounds like a good location to me if you love government involvement in your life.  I suppose some people need / like that.
and yet, real estate prices are Sky high. Hmm.

rated:
Why not 1031 exchange?

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rufflesinc said:   
ChinaRider said:   
coastesque said:   
dealgain said:   CA will make sure to grab every penny of tax due to them

CA is the most desirable state in the union. Do you think it would be free to live here? If it werent for our cost of living, half of the country would move here. TX on the other hand....

  That's laughable.  Population growth in California is about as low as it's ever been.

Only sounds like a good location to me if you love government involvement in your life.  I suppose some people need / like that.

and yet, real estate prices are Sky high. Hmm.

  You're making my point.  One of the many reasons why real estate prices are high is because California has the most restrictive building laws around - i.e. government.  I'm not knocking it for everyone, but some of us choose to avoid government involvement in our lives as much as possible.  I'm sure most Californian's are happy there, but that doesn't make it the 'most desirable state in the union' as the poster I was replying to put it...  Quite the opposite in my mind.

At any rate, we're way off topic...

rated:
ChinaRider said:   
rufflesinc said:   
ChinaRider said:   
coastesque said:   
dealgain said:   CA will make sure to grab every penny of tax due to them

CA is the most desirable state in the union. Do you think it would be free to live here? If it werent for our cost of living, half of the country would move here. TX on the other hand....

  That's laughable.  Population growth in California is about as low as it's ever been.

Only sounds like a good location to me if you love government involvement in your life.  I suppose some people need / like that.

and yet, real estate prices are Sky high. Hmm.

  You're making my point.  One of the many reasons why real estate prices are high is because California has the most restrictive building laws around - i.e. government.  I'm not knocking it for everyone, but some of us choose to avoid government involvement in our lives as much as possible.  I'm sure most Californian's are happy there, but that doesn't make it the 'most desirable state in the union' as the poster I was replying to put it...  Quite the opposite in my mind.

 

 Really? That's your explanation, zoning laws? That might explain higher BASE prices, not year-over-year percent increases

If CA had lower taxes, RE prices would be even more astronomical

rated:
Do we really need another TX vs CA discussion?

rated:
I didn't reply correctly.

In regards to the 1031 exchange, being here in the Bay Area, I don't see much of a good investment property to go into. I know I can't time the market but with rates rising and current highs in home prices, I fear a correction coming.

Regardless, it's been a bumpy road with the rental property and I have had better returns in the stock market without the headache. I am not so eager to jump back in to investing in real estate at the moment.

Thank you all for your input!

 

rated:
waikikisneakie said:   I didn't reply correctly.

In regards to the 1031 exchange, being here in the Bay Area, I don't see much of a good investment property to go into. I know I can't time the market but with rates rising and current highs in home prices, I fear a correction coming.

Regardless, it's been a bumpy road with the rental property and I have had better returns in the stock market without the headache. I am not so eager to jump back in to investing in real estate at the moment.

Thank you all for your input!

 


I will happily buy your bay area home (as would thousands of people lined out your door) as an investment and take my chances at a correction. If you bought 3 years ago you are already insulated from a 20% correction. Even Google shares cant outperform us over the long haul let alone the index.

rated:
Interesting how a lot of the pro California posts inserted OT into these threads are often from a one post new member who's usually never seen from again.

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jerosen said:   Interesting how a lot of the pro California posts inserted OT into these threads are often from a one post new member who's usually never seen from again.
  They're too busy enjoying their all year round perfect weather?

rated:
jerosen said:   Interesting how a lot of the pro California posts inserted OT into these threads are often from a one post new member who's usually never seen from again.
  I've speculated on another thread that Ruffles is having fun trolling us. There was a California thread two weeks ago that he didn't comment on. Now, I think he might be having fun by basically replying to his own comments.

rated:
stanolshefski said:   
jerosen said:   Interesting how a lot of the pro California posts inserted OT into these threads are often from a one post new member who's usually never seen from again.
  I've speculated on another thread that Ruffles is having fun trolling us. There was a California thread two weeks ago that he didn't comment on. Now, I think he might be having fun by basically replying to his own comments.

  1) i was on vacation. 2) i don't make alt ids when i troll you

rated:
Stubtify said:   But then you would have to live in TX.

You made a nice windfall and got to Live in CA while doing it.

  Residing in Texas doesn't require spending all your time there.

rated:
Stubtify said:   But then you would have to live in TX.

You made a nice windfall and got to Live in CA while doing it.

  
Let me help you with that phrasing:

"You and California made a nice windfall"

rated:
Glitch99 said:   Stubtify said:   But then you would have to live in TX.

You made a nice windfall and got to Live in CA while doing it.

  Residing in Texas doesn't require spending all your time there.

Thank God?

rated:
fw9999 said:   
coastesque said:   
dealgain said:   CA will make sure to grab every penny of tax due to them

CA is the most desirable state in the union. Do you think it would be free to live here? If it werent for our cost of living, half of the country would move here. TX on the other hand....

  Well, that plus the earthquakes... and the mudslides... and the wildfires...  and the droughts.  Oh, yeah, and Jerry Brown.

  You forgot the democrats, too.

rated:
As a CA resident you are taxed on your worldwide income less any applicable tax treaties or exceptions. If you were taxed by another state you would get a credit for that to reduce your CA tax, but not for a tax free state. CA is a little more aggressive than some states, but most states with an income tax are the same in taxing all of your income even if it is earned in another state. You can deduct your state taxes from your federal income so the effective tax rate is a little lower. Make sure you talk to a CPA about any tax deductions you have that can reduce the basis or otherwise reduce your taxes.

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gnopgnip said:   As a CA resident you are taxed on your worldwide income less any applicable tax treaties or exceptions. If you were taxed by another state you would get a credit for that to reduce your CA tax, but not for a tax free state. CA is a little more aggressive than some states, but most states with an income tax are the same in taxing all of your income even if it is earned in another state. You can deduct your state taxes from your federal income so the effective tax rate is a little lower. Make sure you talk to a CPA about any tax deductions you have that can reduce the basis or otherwise reduce your taxes.
  
That is not true for the other states I have had to pay tax to over the years...  VA and ME most recently.  

Employers have to code the state that the money was earned in on your W2, and 1099s are obviously similar.  When I was doing field work I usually had income from 2-3 different states.  Texas resident, with no income tax -- but I do pay property taxes and those get you no matter where you work.

rated:
RedWolfe01 said:   
gnopgnip said:   As a CA resident you are taxed on your worldwide income less any applicable tax treaties or exceptions. If you were taxed by another state you would get a credit for that to reduce your CA tax, but not for a tax free state. CA is a little more aggressive than some states, but most states with an income tax are the same in taxing all of your income even if it is earned in another state. You can deduct your state taxes from your federal income so the effective tax rate is a little lower. Make sure you talk to a CPA about any tax deductions you have that can reduce the basis or otherwise reduce your taxes.
  
That is not true for the other states I have had to pay tax to over the years...  VA and ME most recently.  

Employers have to code the state that the money was earned in on your W2, and 1099s are obviously similar.  When I was doing field work I usually had income from 2-3 different states.  Texas resident, with no income tax -- but I do pay property taxes and those get you no matter where you work.

Form 1099 contains no information regarding the state in which the amount reported was earned.
VA taxes all income earned by residents of the state and gives credit for tax paid another state.  Nonresidents from border states don't have to pay tax to VA on wages earned in VA, but pay taxes without any credit to their home state.

ME likewise taxes all income earned by residents of ME.    

rated:
jhburgess said:   
RedWolfe01 said:   
gnopgnip said:   As a CA resident you are taxed on your worldwide income less any applicable tax treaties or exceptions. If you were taxed by another state you would get a credit for that to reduce your CA tax, but not for a tax free state. CA is a little more aggressive than some states, but most states with an income tax are the same in taxing all of your income even if it is earned in another state. You can deduct your state taxes from your federal income so the effective tax rate is a little lower. Make sure you talk to a CPA about any tax deductions you have that can reduce the basis or otherwise reduce your taxes.
  
That is not true for the other states I have had to pay tax to over the years...  VA and ME most recently.  

Employers have to code the state that the money was earned in on your W2, and 1099s are obviously similar.  When I was doing field work I usually had income from 2-3 different states.  Texas resident, with no income tax -- but I do pay property taxes and those get you no matter where you work.

Form 1099 contains no information regarding the state in which the amount reported was earned.
VA taxes all income earned by residents of the state and gives credit for tax paid another state.  Nonresidents from border states don't have to pay tax to VA on wages earned in VA, but pay taxes without any credit to their home state.

ME likewise taxes all income earned by residents of ME.    

  
I never said I was a resident, just that I had to pay income taxes to both of these states.  (8-12 month contracts)  Both of those times I ( as a TX resident) paid fairly substantial taxes, both income and vehicle property taxes.  I did not pay any taxes on TX income to either state - the tax form specifically excluded it.

1099 certainly has a payer, and if you are in a state where there is a tax then that payer reports the 1099 to the state.  Just to write it off their own taxes if for nothing else.  I know that *I* wouldn't want to not report a 1099 in California if I was paid on one from there.   Go right ahead if you want to.  VA has a tax treaty with its neighbors, not uncommon at all.  Even places with bitter cross-border tax issues tend to do that like WA and OR.  

Oh, and you can add NC to the list, I got back a little refund check this year from what was withheld - and will likely have an even smaller one next year.  They didn't tax anything but what I made in NC.  No way would I ever move to a state that wants a piece of what I make contracting in someone else's jurisdiction.  I don't mind paying taxes to NC when I am working in NC, but that is about all the "generosity I am capable of.

rated:
RedWolfe01 said:   
jhburgess said:   
RedWolfe01 said:   
gnopgnip said:   As a CA resident you are taxed on your worldwide income less any applicable tax treaties or exceptions. If you were taxed by another state you would get a credit for that to reduce your CA tax, but not for a tax free state. CA is a little more aggressive than some states, but most states with an income tax are the same in taxing all of your income even if it is earned in another state. You can deduct your state taxes from your federal income so the effective tax rate is a little lower. Make sure you talk to a CPA about any tax deductions you have that can reduce the basis or otherwise reduce your taxes.
  
That is not true for the other states I have had to pay tax to over the years...  VA and ME most recently.  

Employers have to code the state that the money was earned in on your W2, and 1099s are obviously similar.  When I was doing field work I usually had income from 2-3 different states.  Texas resident, with no income tax -- but I do pay property taxes and those get you no matter where you work.

Form 1099 contains no information regarding the state in which the amount reported was earned.
VA taxes all income earned by residents of the state and gives credit for tax paid another state.  Nonresidents from border states don't have to pay tax to VA on wages earned in VA, but pay taxes without any credit to their home state.

ME likewise taxes all income earned by residents of ME.    

  
I never said I was a resident, just that I had to pay income taxes to both of these states.  (8-12 month contracts)  Both of those times I ( as a TX resident) paid fairly substantial taxes, both income and vehicle property taxes.  I did not pay any taxes on TX income to either state - the tax form specifically excluded it.

1099 certainly has a payer, and if you are in a state where there is a tax then that payer reports the 1099 to the state.  Just to write it off their own taxes if for nothing else.  I know that *I* wouldn't want to not report a 1099 in California if I was paid on one from there.   Go right ahead if you want to.  VA has a tax treaty with its neighbors, not uncommon at all.  Even places with bitter cross-border tax issues tend to do that like WA and OR.  

Oh, and you can add NC to the list, I got back a little refund check this year from what was withheld - and will likely have an even smaller one next year.  They didn't tax anything but what I made in NC.  No way would I ever move to a state that wants a piece of what I make contracting in someone else's jurisdiction.  I don't mind paying taxes to NC when I am working in NC, but that is about all the "generosity I am capable of.

  The reason the form specifically excludes it is because you were a nonresident. It would be unconstitutional for a state to tax a nonresident on income earned in another state. You said you're a TX resident, so what the other poster was saying is that you pay tax to VA on what you earned in that state and you also [if there was a personal income tax] pay tax to Texas on the income you earned in VA. Then, TX would give you a credit for the amount of tax TX assesses on that VA source income. Of course because there is no personal income tax, you don't deal with that at all. But if you were a resident of another state, that's the way it would work. That's why your example is not entirely relevant.

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