Who Includes Rental Income Tax as an expense?!

Question

I am curious. Typically when I analyze a property I include the usual (property tax, insurance, etc.), I was wondering if anyone includes rental income tax as an expense when analyzing a property? For example, after deducting insurance and whatever other tax write-offs there are (renovations, anything else?), you have to pay that tax (depending on your annual earnings). Obviously this would effect the COCROI, so I'm thinking it should be an expense.

Let me know your thoughts :)

Bill B. · Answer

You will also most likely have negative income tax for the first several years and several properties because of phantom depreciation. So it could just as easily counted as a net benefit. You could figure out how much you would have to earn from a taxable source to end up where you will with real estate tax free, at least for awhile.

Steve K. · Answer

Personal Income Tax is really not an expense and it's relative to how much more or how much less you make. It should not be included in the property calculations. Moreover, it will vary when you have more properties or your income grows. So, what number will you go with? Like it or not that need to be paid your partner Uncle Sam or his Canadian equivalent cousin.

Some jurisdictions in the US levy a Gross Receipts Tax or the business privilege tax, which is small percentage of your rental gross income. That would be considered an expense.

You certainly must come up with creative strategies, with help of your CPA, to reduce your tax burden. There is some many way you can reduce if not eliminate that.