Cash flow after income tax for rental property

[Igor Aka]

Hi all - does anyone use cash-flow after income tax to evaluate the attractiveness of a property? I projected positive cash flow on a prospective property... until I added my expected income taxes, which turn the number red (primarily because principal payment is not deductible).

Curious to see how folks think about this.

[Ali Boone]

Typically all of the write-offs on a residential rental property negate any income tax you would have to pay. So no one really counts income tax as an expense but you don't have to pay much, if any, of it. Are you familiar with the tax benefits of rentals and how that all works?

[Igor Aka]

Hi Ali, I'm not very familiar with tax benefits of rental. Could you share some reference material on the topic?

Best,

Sacha

[Jon A.]

Run a search on depreciation. Typically that offsets the income tax. Also, get to understand depreciation recapture when you sell. 

[Igor Aka]

Very helpful! thanks Jon

[Eric Shadowens]

@Igor Aka

Igor, here is a link to an IRS publication discussing residential rental. As a tax accountant it’s great reading to me, but I’m sure it could be somewhat boring for others.

Consider reading through and you’ll likely come up with plenty of tax questions. Happy reading!!!

https://www.irs.gov/pub/irs-pdf/p527.pdf