State tax as a reason not to get into new state?

Question

Live in CA. Have 3 investments in Multi family and flip via syndication in FL, TX and CA.

Syndication now offers me opportunity in Atlanta GA. Seems to me that it is a problem for me since it will be my first (and hence small, 50K investment) which will trigger me having to pay my CPA next year extra $100 or so to file my taxes in GA (right?)

TX and FL don't trigger that, and CA does but I already live here so... :-) Would you not enter a new state for this reason?

Brian Burke · Answer

It's certainly a consideration.  One of the great things about FL & TX is they don't have state tax so that means no state tax returns for investments there.  GA has state tax so you would have to file a GA state return if you invest in a property there.

You should check with your CPA regarding the preparation fees, though.  I'm in a similar position but the state returns don't really cost me much, if anything at all, because my accounting firm uses great software so doing the state tax return seems to be just a matter of hitting print because the data is there already when they enter the K-1 and flag it as GA source income.  I'm sure the CPAs on BP can opine on that better than I can.

Since you live in CA I doubt you'll be paying more tax on the investment because CA has some of the highest taxes in the country and you'll be paying CA tax because you are a resident (but get to deduct the amount you paid to GA)...so the only extra cost to you is the preparation fees (if any).

Basit Siddiqi · Answer

@Hernan Guelman

You should make an overall decision on whether to invest or not based on your return on the investment which factors external costs such as compliance fees that it would cost.

Example = Projected annual return from investment $10,000Additional compliance cost as a result of investment $1,000Investment = $50,000

return considering extra compliance costs = 18%return not considering extra compliance costs = 20%You should consult with your tax advisor just to see what the extra cost would be. It is possible that he does not have much experience doing Georgia tax returns and would charge you a lot to research/review the return.@Brian Burke brought up a good point that since you are a resident of California.The income from the syndication will be reported on your GA return and CA Return. However, since the tax rates in CA are higher; ultimately CA will give you a credit for taxes paid to GA but you are ultimately still paying CA tax rates.

Now you can argue that your CA return is more difficult since you are dealing with credits paid to other states. but your accountant should be familiar with this concept.

Michael Plaks · Answer

@Hernan Guelman

I had to re-read your question and the earlier responses, since I did not believe my eyes the first time.

Are we really having a discussion about whether a $100 expense is a factor in your decision on an investment? Because if we're, I'm struggling to understand this thinking.

I don't care whether this $100 is for state tax preparation (which, by the way, would be a very low cost and should be higher), for taking a business partner to dinner, or for anything else. You should never choose an investment based on a $100 cost, unless your entire investment is $100.

PS. You also should never make a business/investment decision based on taxes.

PPS. Many syndications absolve you from the burden of filing state tax return by filing so-called "composite state tax returns" for all their investors. GA does allow that. Check with yours if you're really concerned.

Stanley Bronstein · Answer

Don't let the tax tail wag the dog it's attached to.

Just plug the state taxes into your numbers.

If the numbers still work, then go ahead and invest in the state that has taxes.

If the numbers don't work, then don't invest in that particular deal and look for others.

Gilbert Dominguez · Answer

The thing about syndications is that you are not the one picking which property to invest in. At least that is my understanding. You appear to be in a prosition to either work with the numbers or not invest. Think overall if you still stand to gain something then you need to consider if the something is enough for the little extra work and expense it will mean to you. Maybe try to invest in an Opportunity Zone to offset whatever added expense you might have to face by investing in Georgia, Just a thought. If you see your real estate investing as a single action or body then there are strategies to use to balance things out . This is my approach I never see things as stand alone deals. I always see how each deal will affect my overall investing system, kind of like keeping a general ledger versus account by account.

Alina Trigub · Answer

@Hernan Guelman

If you plan to continue investing in multifamily via syndications, do you want to limit your investments to No State taxes States only? Think how will it impact your bottom line? Will this strategy allow to diversify?! If your CPA doesn't know how to prepare GA state return (which I highly doubt) or charge a lot more, you can always search for a new  investor-friendly CPA. And as @Brian Burke noted, nothing can beat CA taxes! :)

Katie L. · Answer

@Hernan Guelman

Do you expect your return to be greater than the additional tax preparation costs and hassle?  If so, seems it might be worth your while depending on how much money you stand to profit...

*This post does not create an attorney-client nor a CPA-client relationship.  Readers are advised to seek professional advice.

State tax as a reason not to get into new state?

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