If I, a resident of California, sell a rental house I own in Hawaii, what are the tax implications? There will be gains (even in this real estate market) and recaptured depreciation. Obviously there are federal tax obligations. But will I also owe taxes both the the states of Hawaii and California?
Yes, you will owe tax to both states. However, one will give you a credit for some or all of the tax paid to the other. In most cases, you pay the nonresident state and take the credit on your resident state return, but I know that California has some reverse agreements so you'll have to look at both state's instructions carefully.
Ira Smilovitz
It's my understanding you only pay state tax in the state in which you are a resident. However, you pay tax on worldwide income.
You can only be a resident in one state at a time. Since you are a resident of California, you must pay California state income tax on the sale of the Hawaii property.
Your understanding is wrong. Not only do you pay state tax in every state where you receive income (assuming that state has a personal income tax), you can also be a resident of more than one state simultaneously. Residents are taxed on all income world-wide, non-residents are taxed on income sourced to that state. Credits are usually, but not always, given to reduce the amount of doubly taxed income.
Ira Smilovitz
"Taylor" wrote in news:HO2dnclsVIzBUYTVnZ2dnUVZ snipped-for-privacy@comcast.com:
I think you will find that a non-resident selling real estate situate in the State of Hawaii is subject to a 5% witholding at time of closing. See form N-288. Actual tax liability is figured on the annual non-res individual tax return, N-15.
scott s. wrote: [...]
Five percent withholding of what? Sales price? Net taxable profit? Any exceptions?
If anyone knows, I'm curious whether Hawaii will ask, based on the Form N-15, where is the 4% excise tax on monthly rents you should have been collecting and remitting all this time? (Hawaii has an excise tax in lieu of sales tax, and it includes residential rents).
My question assumes that you have not actually been collecting and remitting it, and also that you are most likely a landlord since you are selling residential property as a non-resident (which is all the information the state has to go on).
-Mark Bole
As others have observed, as a California resident you will pay California tax on the gain on the sale of the property; you will also pay tax on the gain to Hawaii, because it is Hawaii source income. California will give you credit for the tax you pay to Hawaii on the gain, limited to the proportion of your California tax liability that relates to that income. The credit is calculated on Form 540, Schedule S.
Hawaii requires the purchaser to withhold 5% of the "total amount realized from the sale." The amount withheld will be credited against the tax due on your Hawaii nonresident income tax return. There are some conditions under which withholding may be reduced or waived. See Hawaii Tax Information Release 2002-2,
Mark Bole wrote in news:ytNSj.4414$ snipped-for-privacy@newssvr13.news.prodigy.net:
Katie provided the link to that, separately.
The resident return (N-11/N-12) has a line for your GET Id# and gross income for Fed sked E amounts (among others). From time to time PR releases end up in the paper to the effect that HI DoTax is going to check for GET failure to pay. I believe the law requires a non-resident to have a property manager in the State of Hawaii, at least for residential rentals, and in my personal experience, the property manager is going to pay the GET out of owner funds, prior to providing any net to the property owner.
scott s. ..
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