Spreadsheets: Should depreciation and taxable income be included?

[Frank S.]

Like many of us, I have created my own spreadsheet calculator to analyze multi-unit properties. I am struggling to understand how depreciation and taxable rental income should be calculated in the spreadsheet.

As I currently understand it: Depreciation of property value (not land) can help reduce taxes on rental income. And estimated taxes owed is total income minus total expenses (cash flow) then multiplied by your current tax rate. Am I right?

Does straight-line depreciation increase each year because of inflation, ARV, or annual property appreciation, switching tax brackets, etc?

Should I add estimated income taxes to my non-operating expenses to get a more accurate analysis of cash on cash return?

Should I include inflation to future income tax expenses?

Does inflation need to be calculated at all anywhere in a spreadsheet calculator?

Sorry for so many questions, I'm so confused... Could anyone provide any feedback, suggestions, thoughts?

[Jeff B.]

Straight-line is just that; a linear, FIXED amount every year.  For long term B&H, this is the right choice.  For short term ( 5-7 year plan), use the Double Declining Balance method - - and that's a bear to get right.

Forget 'appreciation' as it is not realized until you sell and then you have to deal with Depreciation Recapture too.  

Also ignore inflation and it's even worse as you can't reasonably estimate this unknown.