Income Tax From Property In Income Tax-Free State
Wondering if you have to pay taxes on rental income from a property in an income tax-free state. 

Example: You have a property in Texas that generates income and you live in California. Would you benefit (tax-wise) in any way from owning the property in that state or would you still have to pay taxes on the income since you file taxes in California? 

I see a lot of OM's for NNN properties advertise that they are in an income tax-free state but can you really even benefit from that if you don't llive in that state? 

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Thanks in advanced!
[{"id": "eshqxlu", "text": "I'm not active in any tax free state but California may be an extreme example of a state who will pursue as much tax revenue as possible and nothing would surprise me.", "replies": [], "depth": 1}, {"id": "eshqz86", "text": "Generally, anyone running a rental property is going to set it up as an LLC, which subjects you to state corporate income tax. You could, theoretically buy the property yourself, put it in your name, and try to run it without a business license or LLC, but I wouldn't do that. You open up all of your personal assets to seizure that way.", "replies": [{"id": "esi600w", "text": "I know many people that have rental properties and the ones with LLCs are few and far between.", "replies": [{"id": "esif3ww", "text": "Just because a lot of people do something, doesn't make it a good idea. If you own a rental property in your own name and your tenant has a bbq at his house, it starts raining, he moves the grill in his garage like an idiot and then dies of CO poisoning because you didn't have a CO detector in the unit, guess who's getting sued for gross negligence and wrongful death?\n\nYou are. Personally. Hope your wife didn't want to keep her house, and your kids weren't planning on college... or new school clothes.\n\nSeriously, It takes 10 minutes and about $250 to set up an LLC. Anyone who owns property, rents it to other people, and doesn't have it in an LLC is an idiot.\n\nSource: This actually happened in one of my buildings. Also, I used to work for a company that calculated wrongful death damages.", "replies": [{"id": "esijs5a", "text": "You are getting sued either way. A single member llc will not protect you here, as you have personal tort. If your employee messed up, maybe. But you are still liable for your own actions.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "eshvdki", "text": "You are taxed on all your income when you live in. California, so yes, you would pay California income tax on the rental profits. This would be the case in most states. Earning money out of state, that has no/lower income tax means you will pay the difference to your home state.", "replies": [{"id": "esjkcb6", "text": "So does that mean if the rental is in a state with equally high taxes then you would pay the tax only to that other state, but you would get an equivalent deduction from your own state's taxes?", "replies": [{"id": "esjnue5", "text": "No, you end up paying the sum of the higher taxed state, regardless.", "replies": [{"id": "esjpt79", "text": "Yeah, so I think what I said then would be true right?  You always have to pay tax for the rental income in the state where the property is located.  But you shouldn't get taxed for the income in two states, so you get a tax credit in your own state for the amount you paid that other state.", "replies": [{"id": "esjpzyd", "text": "Ah, I see what you meant. I thought you were saying like \"if that state is 6%, and my state is only 5%, do I get refund of 1% then?\". Sorry, misread it.\n\nYes, if the other state was say, 5% and your state is 6%, you would get a credit for that 5% paid to the other state, and only pay 1% more to your own state. You are correct.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "esi9uy4", "text": "I don't know if I am qualified to answer this at all, since I'm not an accountant and my experiences are with rental residential properties in states that do require income, and I'm sure every state's requirements have differences, so please take my musings for whatever they might or might not be worth: \n\n&amp;#x200B;\n\nWhen I had rental property in MO and lived in KS, I filed the earnings on those residential property as income earned from another state, so it wasn't taxable to me. It was, however, taxable in the state where the income occurred. My first year in KS, I wasn't working so my taxes were filed as \"non-resident income\" and when I did generate income in my new location, it was considered \"part-time resident\" or something like that and I filed returns in both places. \n\nIn other words, the location where the income is earned had the say-so on the taxable amounts.", "replies": [], "depth": 1}, {"id": "esp35m4", "text": "This is just a general answer. So you still need to talk to your accountant or a tax attorney.\n\nMost people have investment properties in LLC's. They do this because LLC's are pass through entities, that being said you pay taxes. But you pay taxes together with what ever other income or earned income you have. \n\nDo not fret their are many benefits to this, towards your individual advantage, tax wise.", "replies": [], "depth": 1}, {"id": "etccwjx", "text": "I work in 3 states, two of which have income taxes. My home state does not. I pay income tax for commissions on properties sold in those two states, but not my home state. Since expenses are difficult to proportion according to state lines, I write off expenses as thirds and apportion them to each state.\n\nI'd imagine the inverse would be true as well though. Technically income made in an income tax-free state would be considered income earned in that state and not subject to your home state income tax.\n\nI'm no tax expert, its just how I do it and seems to be contrary to others posting here.", "replies": [], "depth": 1}]