Newbie question, please help

[Nathan Christensen]

I have seen many examples of 'cash flow analysis' Rental Income minus expenses, mortgage payments, and expected vacancy rate (let me know if I'm leaving something out). However I would believe that the rental income is taxable as income therefore you would be working with a diminished income to pay off all those expenses. Is it legal to pay taxes after paying expenses. Must you you use a corporation to shelter your passive income from taxes to do this? Please tell me how this works as far as taxes are concerned. Thank you ahead of time!

[Dave Holland]

@Nathan Christensen

Think of rental income for tax purposes as the net income (rent received minus all expenses paid and depreciation), and you wont pay any tax on this net gain until you file your return at the end of the year.  Until you get to the point where your rentals are netting positive, at which time you'll consider sending in quarterly tax payments. But again no need to worry about this now.

Also, you do not need to be incorporated or form any sort of business entity in order to take tax deductions.  My best advise is to track all of your expenses and go over with your CPA.