What do you need to know about investment partnerships?

As a developer, you know that investing in a California investment partnership can prove quite lucrative. But before you invest, you need to make certain that you understand how California law defines and treats these investments. 

For instance, as FindLaw explains, Section 17955 of the California Revenue and Taxation Code defines an investment partnership as one in which at least 90% of its investment securities represent a combination of bank or other financial institution deposits and the office space and equipment necessary to conduct business. In addition, at least 90% of its gross income must derive from the dividends, interests and gains it receives from selling or exchanging its qualifying investment securities. 

Qualifying investment securities 

As for “qualifying investment securities,” they can include such things as the following: 

  • Common stock 
  • Foreign or domestic deposits of cash or currency equivalents 
  • Securities backed by mortgages or other assets 
  • Repurchase agreements 
  • Futures contracts for stocks or bonds 
  • Regulated futures contracts 

Under no circumstances, however, does your interest in any partnership other than another investment partnership qualify as an investment security. 

Taxable income 

If you do not live in California on a full-time basis, you will not have to pay California income tax on the dividends, interest or gains you receive from your qualifying securities under several specified circumstances including any of the following: 

  • Your only contact with the investment partnership is through a California broker, dealer or other financial advisor 
  • The partnership qualifies as a California investment partnership, regardless of whether or not it locates its principal place of business in California 
  • The partnership qualifies as a regulated investment company, regardless of whether or not it locates its principal place of business in California 

This is general educational information and not intended to provide legal advice. 

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