Cash Flow After Tax?

Question

Should cash flow on a property be calculated after subtracting tax?

Tax is high in Canada ~45%, so this makes a big difference.

Thanks,

Kaitie

Taylor L. · Answer

I think that's a reasonable thing to do, but it does complicate the cash flow calculation even further. Particularly if you're using depreciation to show paper losses.

Evan Polaski · Answer

@Kaitie Carson, I would definitely consider the tax implications, yes.  Depending on the specific situation, there are scenarios that could cause a cash flowing asset to be negative cash flow, when accounting for taxes.  At least in the US, if you have an amortizing loan, the cash flow statement would include your principal repayment, but your P&L and therefore taxable income does now, thereby creating a larger taxable income than actual free cash flow.

Brenton Hanes · Answer

Remember that real estate investing is a team sport. Always pull in your professionals to help you, including your CPA. With that in mind, the numbers should always be after tax.

Jonny Van Dyck · Answer

Technically, it's the only 100% correct way to do it, since after tax is the only money you actually get to use. It simplifies things to not include it, so it depends what you're trying to do. If you're comparing rental properties, then there's not much point in going into that much detail.Keep in mind that rental property expenses (interest, prop tax, insurance, repairs, depreciation, etc)  are tax deductible so the full after-tax cash flow calculation should include everything after tax.

Here's a decent article - half way down is section on calculated after-tax cash flow.After Tax Cash Flow

Cash Flow After Tax?

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