Paying Income Tax on Low Cost/High Cashflow properties

[Leo Gonzalez]

After successfully purchasing and renting out a duplex in Syracuse NY I've started considering the tax implications of the gross income I will be receiving. The analysis I did on the property accounted for expenses like vacancies, repairs, and capex, but if that money does not get used by the end of the year I'll have to pay taxes on that PLUS the cashflow. Now income tax may not always be a concern for investors whose rental income profits are shielded by the interest on their mortgage payments, depreciation, property taxes, management fees, and repair costs, but shouldn't income tax be another "expense" investors budget for when investing in low cost (Below 150k purchase price)/High cashflow properties? 

If there is something I'm missing please let me know. I've been doing as much research as time allows and I cannot wrap my head around how a low cost property can operate at a paper loss (or close to it) when there is high cashflow. I had planned to use all the cashflow to buy additional properties every year but if I can only use a portion of that cashflow then all of my goals will have to shift significantly.

I guess this begs the question of whether it's better to invest in properties that are more expensive with less cashflow (but operate near a paper loss) or less expensive properties with more cashflow (but operate at a taxable profit). Ideally I would prefer to have less roofs and more doors that help me reach my goal of financial independence (8k per month) but if that's not possible with low cost properties then what's the best rental portfolio design that I should strive for?

[Tommy F.]

@Leo marry your passive income generator (PIG) the low cost duplex with a passive activity loss (PAL) another property that generates a tax loss each year. It's balancing act.