Should an investment real estate analysis contain the tax deduction??

7 Replies

Hi.  I have modified the BP investing spreadsheet to calculate Cap Rate.  I was going to add a line for the deprection deduction and cash benefit assuming 28% tax rate.  I started thinking that at the end of the investment that money has to be recaptured so I'm not sure if i should add/account for that tax benefit in the analysis.  What do you guys think?  Maybe im confused about what the recapture means.

Also, if you have an awesome spreadsheet that's not on BP and that factors everything in i'd love to hear about it.

2nd @Ben Leybovich on the 1031 exchange and the Cap Ex.  Personally I do not factor in the depreciation when evaluating a property because I want a buy and hold property to make money every month, not at the end of the tax year.  If you are feeding the beast every month with the assumption of getting it back at tax time you are banking on Uncle Sam.  

Sean Ploskina, Oceanside Properties | [email protected] | 757‑581‑1488

Scott Hearne investments are generally evaluated on a "before tax" basis for comparative purposes, however it is important to understand the "post tax" performance of you investment.

If you are comparing buy hold, wholesaling, and fix and flip, it will be beneficial to see performance post tax.

Medium logo blackBrandon Hall CPA, The Real Estate CPA | http://www.therealestatecpa.com | Podcast Guest on Show #196

Leave this one to the CPA's. Personally, I don't calculate it. What is important to me is profit. Paper losses are great for deferring taxes. If a property nets out 10K and I can get 4K in depreciation at the end of the year that is a bonus. I have one property I intend to 1031 to defer gains on so any recapture is irrelevant at this point.

No company avatar mediumJohn Thedford, John Thedford | 239‑200‑5600 | http://www.capehomebuyers.com | FL Agent # BK3098153

Thanks you guys for the responses.

Hey @scott 

@Scott Hearne.  I guess it's up to everyone's individual goals.  But I would say that's it's generally wise to consider the after-tax return on an investment.

Originally posted by @Ben Leybovich :

The depreciation does not necessarily have to be re-captures.  1031 Exchange allows deferral indefinitely...

However, if you are going to include depreciation, then include CapEx into the expenses :)

 Save, CAPEx should be a below the line reserve and not an expense.  Pedantically, speaking ;-)

Medium greenapartmenthires 1024x1024Roy N., Louer Louer Ltd. | 1.506.471.4126

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