RentSimpli is a full-service San Diego property management company specializing in single family homes, townhouses, condos, mobile homes, small commercial buildings and small apartments. We also work with a lot of owners and investors who live outside of California. There are specific tax laws that apply to them a bit differently, and we frequently get questions about how living out of state affects what they owe the California Franchise Tax Board.
Today, we’re going over what you should expect when you own San Diego investment property but live outside of California.
Please remember that we are professional San Diego property managers, and we have a lot of experience with rental property accounting. But, we aren’t attorneys or tax professionals. For specific information or guidance, you should consult your CPA or tax preparer.
Requirements for Out-of-State Investors
As your property management company, we are required to withhold 7 percent of your gross payments if you own rental property in California but maintain a primary residence outside of the state. This is a requirement of the California Franchise Tax Board, commonly known as the FTB.
Unless you’re exempt, you will have to pay the seven percent regardless of the property management company you choose to work with. You will be required to make this payment if you earn $1,500 or more in a year on your rental property.
This doesn’t apply to you if you’re an active duty member of the military because you’re still considered a California resident. This is only for people who own income producing property here but don’t live in California.
Exemptions to the 7 Percent FTB Payment
There are some exemptions for out-of-state investors, but they are complex. You can request a waiver or a reduction in what you pay based on:
- State tax returns that you’ve filed for the last two tax years. Your tax obligations must be current.
- You own a corporation that isn’t qualified to do business in California and doesn’t have a place of business in California but is filing a combined tax return with a corporation that does have a permanent residency in California. This will require Schedule R-7, Election to File a Unitary Taxpayers’ Group Return.
- You are a shareholder in a new S corporation, a partner in a partnership, or a member in an LLC that received a waiver. That waiver will expire, and when it does, you need a current California tax return on file.
FTB Requirements and RentSimpli
You cannot pay this on your own when you’re represented by a property management company. It must come from us. In our office, we will require that you fill out and sign all the FTB paperwork via DocuSign when we set up our management contract. We try to keep the process as simple and stress-free as possible with you. If you are working on this requirement directly with your accountant or CPA, we can help you gather the information that you need to take to your accountant. We’ll also work out how we’ll withhold the seven percent from your earnings while your accountant takes care of the FTB requirements for you.
We’d be happy to talk to you further about any questions you have regarding California’s FTB and what it means for your San Diego rental property. Please contact us at RentSimpli.
We serve landlords, investors, and property owners in San Diego, La Mesa, El Cajon, Chula Vista, Santee, Rancho Bernardo, Escondido, Fallbrook, Temecula, and Murrieta.