CHAPTER 18Calculation 12: Taxable Income

What It Means

A property’s taxable income is exactly what its name suggests: the amount on which you must pay federal income tax. Perhaps it would be more helpful to identify what taxable income is not: It’s not your total rental income, not your income after operating expenses (i.e., NOI), and not your cash flow.

Taxable income in regard to real estate, like taxable income in the rest of your life, is whatever the tax code says it is. Fortunately, for purposes of this discussion, while there have been minor tweaks from time to time, the definition as it applies to real estate has remained basically constant. It’s reasonable to believe that what you learn here will still be useful after the ink is dry. ...

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