Hi everyone, I am running the numbers on a potential property and Im making sure I am doing this correctly.Here are the #s, if these look right I am paying $803 in taxes on a property that Cash flows $1,574?? Gross Rental Income $14,400 - Operating Expenses $5,391 Net Operating Income $9,009 - Mortgage Interest Expense $3,693 - Depreciation Expense $2,103 Taxable Income $3,213 Taxes Owed (25% Tax Rate) $803

Welp keep in mind you're paying a full mortgage payment and only allowed to deduct the interest so you've also got a debt paydown benefit too.

@David Chapoell No problem. I learned about SDIRAs 28 years ago and everyone who learns wished they knew it sooner. Feeling the pain of taxes makes you like tax saving strategies and understand their value. The USA tax system is setup so The more you make, the more taxes you pay unless you use the tools available to you. Let me know when you are ready and I can help you understand it. Tax free income for life is nice! The sooner you get there the nicer it is.

@Carl Fischer sorry for the delay in response. Thanks for the assistance! Just another thing to add to the loooong list of todos :)

@David Chapoell You can set it up SDIRA anytime-no rush. I generally think it is better not to use your tax advantaged plan for your first RE deal. It’s always good to have a comparison. Do it when You want or need to minimize taxes. However, hopefully you are taking advantage of tax saving contributions TO IRAs/401ks etc as much as possible.

Is that something I need to get setup before purchasing my first property or it something I can research along the way and get setup before tax time comes around? I probably need to do some more reading on that part..

@David Chapoell If your in that tax bracket then that’s what it is. What you are experiencing And seeing is what drives me to SDIRA Roth accounts for real estate. Tax free income builds wealth much quicker than taxable accounts. In addition, when you sell you have to pay the depreciation recapture tax-another rude awakening. It is smart of you to analyze it the way you are. So many people don’t understand it. Good luck.

Hi Natalie! The mortgage paydown benefit definitely helps make this property look a little better. $120 cashflow per month isn't super attractive so I am trying to account for any and all expenses that may come up (like taxes :)) that I need to be prepared for

Whoops! I forgot to deduct the interest from the HELOC (used for down payment). That gives me the new math below..interest deduction went up from $3693 to $5,160. Tax owed $414 is about 27% of the yearly cash flow of $1,483. Does that sound about right? Gross Rental Income $14,400 - Operating Expenses $5,483 Net Operating Income $8,917 - Interest Expense $5,160 - Depreciation Expense $2,103 Taxable Income $1,654 Taxes Owed 25% Tax Rate $414

@David Chapoell Something g seems off with your numbers/conclusion. as per your numbers, cash flow would be $5316 (taxable income with depreciation added back in) Less your principal payments on your loan. I’m sure your principal payments aren’t $4,500.....more than your interest?

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Updated almost 5 years ago on 04/15/2020. Most recent reply

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Posts: 106
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David ChappellPoster

Austin, TX

Tax, SDIRAs & Cost Segregation

Taxable Income higher than Cashflow?

David ChappellPoster

Austin, TX

Posted April 02, 2020 08:42

Hi everyone, I am running the numbers on a potential property and Im making sure I am doing this correctly.
Here are the #s, if these look right I am paying $803 in taxes on a property that Cash flows $1,574??

Gross Rental Income	$14,400
- Operating Expenses	$5,391
Net Operating Income	$9,009
- Mortgage Interest Expense	$3,693
- Depreciation Expense	$2,103
Taxable Income	$3,213
Taxes Owed (25% Tax Rate)	$803

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