[quote=cvrentguy]To be more accurate you have to include the amount you have to cough up as
Income tax to Uncle Sam. In your example, if mortgage interest is $1000, then
Tax = 30% of (2600 – (1000 + 235 + 423)) = $500 and there goes the positive
ROI. Add to the mix, the percent time the property is vacant. Beyond that, I will
remain optimistic that our friends in DC would not put a pitchfork into mortgage
interest deduction for rental properties as part of tax code reform. One consolation would be the equity you build up over time thanks to your tenant.[/quote]
Once you start doing stuff on a schedule E, you have other deductions you can take though.. One being depreciation. And other things like cost,etc… So while you might have a positive cash flow, on paper it probably ends up being 0 or negative gain. I’m pretty sure if you can i f youcash flow this with +$500, you can pretty much write it all off as $0 net income on paper, at least for the first couple of years…At least it’s not effectively going to be 30%.
Reality is that the only people who end up paying 30%+ taxes are people on W2 that have no deductions on schedule A or schedule E and don’t have passive income that is taxed at capital gains rate.