As a general rule, if an entity has an equitable interest in real property in a specific state that state will subject the partners to taxation (assuming that state imposes income tax). Accordingly, when you invest in a RealtyShares equity investment opportunity that state will typically tax you and it does not matter what state you reside in.
If a state imposes a state income tax, withholding and filing requirements are typically done under the following scenarios:
- No state withholdings are made by the partnership and the individual partners are required to file state tax returns and to pay income tax on their respective share of the partnership income.
- The partnership withholds state income tax on behalf of the partner and remits it to the state. This withholding is then reflected on Form K-1 and the partner is responsible for filing the required tax forms.
- The partnership withholds, remits and files all information with the state and the individual partner is not required to file or pay anything. This is called a composite or group filing.
State filing requirements are complex. We strongly recommend that you discuss your state filing requirements with your tax professional.