Tax Savings from Rental Properties

[Rick D.]

I realize a real estate investor “makes money” in four basic ways.

• Cash Flow,
• Appreciation,
• Principal Reduction, and
• Tax Savings.

In order to properly estimate my returns I need to assign a dollar value to each of these. The first three are easy to calculate after having made a few basic assumptions, but I need help on #4.

While I understand every individual’s tax situation is different and complicated, there must be a way to make some basic assumptions and estimate this as well. If I ignore 1031 exchanges, ignore deductible property improvements, etc, and assume the following parameters:

Purchase Price:                  $100,000

Property Type:                   Residential (so, 27.5 years of depreciation)

Annual Depreciation:        $3,636

Marginal Tax Bracket:       28%

Est. of Taxes Saved:          $1,018   (= 28% of $3,636)

Is this a reasonable way to estimate money "not paid in taxes" in order to put a dollar amount on #4?

Thanks in advance,

- Rick