Property Management Blog

Tax Benefits of Investing in Washington Real Estate

System - Thursday, October 10, 2019

Tax-Benefits-Washington-Real-Estate

So, what does Washington have that other states don’t?

It has great tax benefits. Washington doesn’t require you to pay state income tax, whether your income comes from wages, salaries, or interests and dividends.

This is great news for those looking to invest in real estate. Your take-home profit is maximized in this setup in Washington. For this reason, a countless number of investors are looking at properties in this state. Nobody wants to pay double taxation. However, like all laws and regulations, there are certain guidelines you need to follow.

Let us take a look at what you can expect in the Washington real estate market and how you can take advantage of the numerous tax benefits.


Who is eligible for state tax non-payment?

Sole Proprietor/Sole Proprietorship

Sole proprietors are individuals who own their business. They’re not a legal entity, and they’re personally responsible for all debt in the business. This means that if you invest in real estate in Washington, you’re exempt from paying the state income tax. You can enjoy all your earnings from this tax break and channel the money that would normally go to taxes to improve your property and attract more tenants.


Partners/Partnerships

Partners are two or more parties that own and manage a business. They’re responsible for the liabilities and share the profits equally among each other. 

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If they own real estate in Washington, they’re also exempt from paying the state income tax. Other states typically tax partnerships.


Limited Liability Corporation (LLC)

A Limited Liability Corporation, or LLC, is defined as “a corporate structure in the United States whereby the owners are not personally liable for the company’s debts and liabilities.” It has both the characteristics of a corporation and a sole proprietorship. If they are set up properly, LLCs can still take advantage of the individual income tax exemption. 

It’s important to have an agent residing in Washington to form an LLC when you’re not residing there. You need a professional to arrange an LLC, so it won’t be considered a corporation under Washington's real estate laws.


Who is not eligible for state tax non-payment?

A corporation is not exempt from paying the state income tax. A corporation is defined as “a legal entity that is separate and distinct from its owners.” A corporation enjoys the same rights as a sole proprietor and a business partnership. It can enter into binding agreements, own assets, loan and borrow money, and is also responsible for the business’ losses.

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Washington taxes corporations for their business income. These taxes can range from 3.3% to 5.5% based on a company’s earnings beyond $5,000. The amount is computed each quarter.

You should consult tax and accounting professionals to learn more about Washington's tax system when it comes to real estate investments.


Considerations if you live outside of Washington

If you currently reside in Washington, it’s easy to enjoy the state tax break. However, if you’re an investor who resides in another state or outside of Washington, there are a few things to consider.

First, it’s difficult to manage a rental property from a distance. You have to be available during emergencies and maintain the property. You’ll also need to budget your time and take transportation costs into account. But before all that, you should know where to find lucrative real estate properties. Do some research as the market will be different compared to the area that you’re residing in.

The best way to handle this and expand your business investments is by finding local real estate professionals. They’ll be able to point you to prime properties and make wise purchases. Once you have the property, they can help maintain, manage, and market it for optimal income. Investing from a distance is a great business opportunity. Most real estate investors hire a professional property management company to further expand their assets and earn more income.

Another thing you should consider is your state’s law on income earned from another state. It’s important to meet with tax and legal professionals before committing to a property purchase.


Other Advantages of Investing in Washington

Property Prices

There are plenty of deals in Washington's property market. 

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It’s a great opportunity to purchase low-priced properties.


Low Mortgage Rates

Mortgage rates are still low, so it’s a great time to invest in properties in Washington.


Property Inventory

There’s a wide range of choices of real estate properties in Washington. Whatever your budget and the location you’re looking for, you’ll find something that will fit your needs. The market is dynamic, so be sure to check the available properties as soon as you can.

Washington is a great place to look to invest in real estate. The tax incentives alone are enough to let you enjoy the extra profit. You can even use these savings to purchase another property.


Bottom Line

If you want to save as much income as possible, the tax incentive in Washington should be a deciding factor. What’s more, Washington is not an expensive place to live in, so you can attract plenty of prospective tenants. As with all things, investing in real estate property requires a professional consultation—especially for new investors. Set up meetings with real estate professionals and take calculated risks in your real estate investments.