Am I doing the tax math correctly?

[Account Closed]

Hi All,

I want to confirm if I understand tax implications of a rental property correctly.  The biggest confusion point for me is if rental income is taxed on gross income or net income (I think it's gross?)

Here's an example, and for this example assume the marginal tax bracket is the 25% bracket.

Property

- $200k SFH, of which $40k is land value and $160k is improvements

- $40k down, $160k loan

Income

- SFH renting for $2000 / month. For simplicity assume no vacancy, so $24k/yr gross income

Expenses

- Mortgage payment is $1000 / month ($12k/yr).  Initially $700 ($8400/yr) to interest, $300 ($3600/yr) to principle amortization.

- Property tax is $3600/yr

- Insurance is $1000/yr

- Annual property management expenses are $1200/yr

- Annual maintenance is $1000/yr

Tax Calculations

- $24,000 taxable gross income

- Deduct $8400 mortgage interest, $3600 property tax, $1200 PM expense, $1000 maintenance expense, $4267 depreciation = $18,467 total deductions

- Adjusted taxable income is $24000-18467 = $5533

Cash Flow

- Pre-tax cash flow is $5,200, for a first year CoC return of 13%

- Post-tax cash flow is $3,816.75 ($5200 - 25% * 5533), for a first year CoC return of 9.5%

Is this analysis correct? On property pro-formas, I'm assuming when people talk CoC returns, they refer to pre-tax returns, is this correct?

Thanks All!