Are taxes to be included as an expense in analyses of cash flow?

7 Replies

Do you usually include property taxes as expenses in your cash flow analysis of a potential property if you are taking out a mortgage on the property and believe that you can count on depreciation?

Taxes are part of the common operating expenses for rental properties.  I don't know about counting on depreciation, but I'd assume it doesn't matter.

Ok, thank you. I would think however, if the depreciation cancels out much of the tax, however, that this could be factored into the operating expenses though?

Yes. its a bill you are required to pay. Its something that can be planned for. 1.2k/yr tax. That's a 1.2k/yr expense. Throw it in the negative side of your ledger and see if numbers still work.

Originally posted by @Mariama R. :

Thank you Brent -so your saying that the lowered net income is in your pocket as well as on paper?

No. Quite the opposite. I'm never looking for lowered net income. All I was saying is I don't do deals on the basis of their so-called depreciation tax benefits. That sort of behavior leads people to joyfully LOSE money each year because the guru-developers sell their new over-priced apartments to high income earners who are looking for any tax dodge they can find to lower their tax bill.

In principle, I'm among those investors who wouldn't mind paying MORE tax, on the basis of having made MORE net income in the first place! Cheers...