What percent of my cash flow should I set aside for the tax man?

[Joe Koppel]

I live in San Diego, CA and am buying rentals in KC MO. I will soon have 4 rentals. I have about $320/mo positive cash flow on each after property tax, insurance and property management. Since this will be my first year what percentage should I set aside for the tax man to be sure I am covered?

One of my co-worker who dabbles in real estate said I should keep 80% set aside for taxes. This doesn't sound right to me but maybe I'm wrong. 50%, 40% maybe??? Any general rule of thumb on this?

Thanks, Joe

[Natalie Kolodij]

Hi Joe 

This $320 a month positive cash flow is before depreciation, mileage and multiple other deductions you can take against the rental income. On paper, you may not end up with taxable income- I'd suggest seeing a professional.

This is where a good CPA is worth the cost- they will be able to make sure you're getting every deduction and mitigating tax as well as implementing a good strategy.