state taxes on rental income - property in a self-directed IRA

[Ruth B.]

Hi BP Community,

I can't seem to find an answer to the following question: Am I required to pay state taxes on rental income generated from a property held in a self-directed Roth IRA? The property was not financed.

Any insights appreciated.

Thanks,
Ruth

[Brian Eastman]

@Ruth B.

The answer is "it depends, but probably not". The IRA is exempted from income tax on passive rental income, but not necessarily other forms of state or local taxation. Any kind of applicable hotel tax for short term rentals, as an example, would still impact an IRA.

You should check with your plan provider and your local CPA.