Buying out of state retreat and tax issues

I had been looking out of state for some out of the way property suitable for a weekend getaway/retreat property, and the Mr. brought up something that kind of killed my plans. I thought I'd toss it up here and see if anyone else knew anything about this.

He said that when he was married to his first wife, they had some property out of state. Oklahoma to be specific. When tax time came, he got hit for both federal income tax AND state income tax for Oklahoma. Texas doesn't have a state income tax. I said that was BS, because he didn't earn any of his income in OK. He said it didn't matter, he still had to pay it.

Does anyone else on here have out of state property that could weigh in on this? I goggled around a bit but didn't turn up anything.

 

I'm calling BS. If you did not earn any income from a property that you own out of state, then there is NO income tax on it. They may have a law that says you have to file a return if you own property in their state to prove you don't owe them anything, been there, done that. The only unconstitutional tax you have to pay is property tax.

 

I would suggest that any property you buy be undeveloped. I've had nothing but continuous problems with "good neighbors" stealing everything not nailed down because the property is abandoned. Which, I guess, means I'm not there with a shotgun to protect my investment. I'll likely dump it this year.

We sent a one time letter to the State (Utah) letting them know our property was 'vacation' property and we did not earn any money in state - and I don't bother with any forms. So far they have left me alone. We pay local property taxes and assessment, about 50 bucs a year. Some states will put the squeeze on "part-time" residents. Checking an RV website with a fulltimer community might provide more insight.

 

I would have to call BS too. You only pay state income tax in the state you earn money in. You will pay property taxes but that is it. I think your mister got taken for a ride. If you earn an income from the out of state property then you would pay tax on it. Like if it were a rental or farmland that you leased out. otherwise it is just property tax. Some states will hit you harder for that than others.
When in doubt, if you find a property you are interested in, find a tax LAWER, not a preparer, for that state, and find out for sure. It may be kinda expensive but if ita a one time thing it may be worth it for the peace of mind.

 

Well I didn't want to argue with him... he swears he got a lawyer over it and they said he had to, but I have to believe he got screwed over on it. Or else there's something he's forgotten to tell me. I can't imagine all those people in MA and NH who have vacation property in Maine are paying double state income taxes.

Good idea on the tax lawyer though, thanks for that one.

 

My thought is, the land may have been leased for hunting or more likely farming. That will generate revenue that will be taxed.
Our family farm gets leased out to another farmer, and the funds keep the taxes paid.
We almost lost the farm to taxes once, so another family member bought it to keep it in the family.
I know the new owner does pay income tax in two states, because of it.

 

Then tell me why athletes a required to pay taxes in every city they play in? it's because that's where their revenue is generated.

 

He just told me it had oil on it. That had to be why they got hit for state income tax, for the income from the oil. That makes more sense now; earlier he was insisting they taxed his Tx income.

 

DW, tell the Mister it's time to take his memory medication.

Another thing to check on is how states tax different types of property. For instance, I know people who bought property in Oregon, to eventually build a retirement home on. Meanwhile, while they're paying it off, they don't want to get hammered for taxes on residential property, so they plant pine trees, and call it a tree farm. Drops the yearly property tax down to something like 5% of what it would be if they called it residential property.

 

Ahh it isn't his fault. His ex got EVERYTHING in the divorce, including half his mind, heh.

 

One of my friends bought a new home in an exurban area, surrounded by farms. When he got his property tax bill, he almost fainted: it figured out to ~$5k/year, even though the old owners were paying less than $1k/yr.

It turned out the the land was zoned agricultural/residential, and the previous owners were growing corn every year, so he decided to become a farmer too: he clearcut the property and sold the oak and maple to a lumber mill, and even managed to sell five really old apple trees to a garden center that came and got them with a giant clamshell digging machine, all for a nice sum of cash.

After that, he planted sugar maples, and told the tax man he is in the maple syrup business. He told me (I don't know if he was pulling my leg) that he got a crop replacement credit from Uncle Sam that would be good for the twelve years it takes for maple trees to start producing "commercial quantities" of sap.

Plus, of course, his property taxes went down to the "agricultural" level.

William Warren

 

The way my accountant explained it to me, is that state income tax is a complicated mix of residency, location where the income was earned, and tax decisions from the courts.

The worst a state can do is hit you for the difference between what they would usually get and what you've paid in other states, but even there, you get to argue. Since I'm living in a state with a high income tax, it's not a problem: he just files a form for me that "offsets" taxes in another state where I have property, and that's all I need.

Although I never checked out the specifics, I got the impression (ahem) that my CPA could turn my out-of-state property into a corporate retreat, and get my name off the deed and the taxman out of my pocket, although it would require corporation filings, fees, and accounting expenses that would have eaten up most of the savings if I were living in a state with no state income tax. It all depends on your family income and taxes you've already paid in your state of residence, so YMMV.

William Warren

 

Me thinks Mr. is stretching the truth a bit. I am NOT an attorney but have played one on TV... no seriously I have been in business nationwide for 30 years, with employees in 31 states. Not once have I heard of a state that you don't live in taxing INCOME as if you did, real property yes, and other property used within the state possibly, but not income. If you live in Texas and work in OK then probably. I.e. all the NJ residents that commute to NY pay some income tax to both, but the state taxes are deductible from the Federal so you aren't paying twice the full amount.

Property taxes are paid only to the state in which the property exists, and there is no federal property tax. So Im calling BS.

 

Pretty much what I said in my head when he told me that... but telling your spouse he/she is full of chit does not a happy house make.

The ONLY thing I can figure... and it's a stretch... is that, knowing his ex's family had a lot of oil wells, the property was producing oil and she was getting $$ off of it, telling him she wasn't getting any income off of it, and then somehow tricking him into paying OK state income tax on his regular earnings to cover it. That would absolutely be up her alley, I just don't see how he would have fallen for it.

Anyway, now that that's cleared up, I'm back to ogling surrounding states for an out-of-the-way patch of land.

 

That make a bucket full of sense, he needed a better lawyer, and accountant.