Higher Property tax vs Income tax

[Amber Saulsbury]

Hi all,

I am sure there are some tax experts on here or at least people with more knowledge or experience in this that may have advice. I am debating whether it is better to invest in Rentals in my home state of Texas or go out of state. The prices of SFHs have gone up substantially in Texas over the last 7 years, and along with that so have our property taxes. This has me looking into some other markets to start investing in SFRs.

My question really relates to how it affects my taxes, etc. Would I be better off keeping my money in Texas and paying the higher property tax which is a deduction against the property on returns. Or am I better off looking out of state at more affordable properties with lower property taxes, but that state would have income tax?

Any thoughts or advice is appreciated.

[Christopher Smith]

While taxes can't be ignored, I wouldn't let taxes drive your decision making. The economics should always come first.

I have properties in CA where I live and have added properties in OH primarily because of the pricing economics, but secondarily because any tax I pay in OH is credited against my CA tax in full so no net additional tax.

If Texas has no income tax then presumably any income tax paid out of state would be an additional cost, in addition to any real estate taxes paid which should at least be deductible where ever paid.

You should also realize prices have risen everywhere (even in OH where I personally can no longer find attractive pricing). CA has been out of site for years now, and I am unaware of any locations where prices are really "cheap". 

Plus if you go out of state you need to have boots on the ground where ever you go to ensure things run as planned. I had lived in OH before moving to CA, so I already had a team there in place (RE agent, PM, insurance guy, relatives in case of emergency, etc.).