OOS investors, does your rental income get double taxed?

[Zhi Li]

Hi all,

I am a newbie investor living in CA and I am just about to close my first rental purchase in IL. But, my CPA told me that since I live in CA and the rent is coming from IL, the rental income will be double taxed by both IL and CA, and this is on top of the property tax that I am paying to the IL.

Is that the case at all? I did not know this until my CPA mentioned it. And my IL agent told me she never heard of that, either. If this is the case, is there any remedies?

[George Skidis]

If you set up an LLC or business entity the answer is a definite Maybe. You need to make an actual profit to pay taxes.

As an individual, in addition to your federal 1040 you would need to file state returns in Illinois and California reflecting the profit and loss.

If you file business returns the same is true it just costs more in preparation fees.

I do not prepare California returns, but many states have reciprocal agreements where the taxpayer can deduct the taxes paid in one state against the income earned in another state.

Your CPA is probably right.

Having an LLC in another state will not save you taxes as Illinois wants EVERYTHING. Doesn't matter if you are a domestic (resident) company or a Foreign (out of state) entity.