Calculating After Tax ROI

[Jake Hartnett]

Everyone says real estate is a tax haven, but I'm wondering exactly what people mean when they say that. In my analysis I see real estate income taxed at a lower rate than my W2 income, but not decreasing my overall tax burden. Am I calculating this correctly?

Example:

$200,000 duplex renting for $2200/month=$26400 annual income

$50,000 down

5% interest - $9660 debt service, $7440 is interest

$9000 deductible expenses (R&M, CapX, Management, Taxes)

$160,000 Value of Improvements / 27.5 years = $5820 depreciation per year

So my taxable income from this property is:

Taxable income = Gross income - deductible expenses - interest expense - depreciation

$26,400 - $9000 - $7440 - $5820 = $4140 taxable income

If I'm in a 32% tax bracket (state and federal) I will pay $1325 in additional taxes. This is only a 5% rate on my $26,400 gross income, which is very low, but it isn't decreasing my overall tax burden.

Am I thinking about this correctly?