Do investors need to file out-of-state tax returns?

State tax returns depend on a variety of factors

When a taxpayer owns an indirect interest in real estate through a partnership (including an LLC classified as a partnership for tax purposes), it may result in a state income tax filing obligation for such taxpayer in the state where the real estate is located (even for nonresidents).

The requirement to file state income tax returns varies widely, depending on the investor’s state of residence and/or the state where the LLC’s property is located.

For example, many US states:

  • Have no state income taxes (i.e. Washington, Texas),
  • Allow LLCs to file on behalf of members through composite returns (i.e. Utah), and/or
  • Have minimum thresholds that determine if investors are required to complete a state tax filing.

Please consult with a tax professional on your particular situation.