Question

Explain why income property cash flow is not the same as taxable income. Property cash flow usually differs from property taxable income because:

Answer 1

Income property cash flow is not the same as taxable income for the following reasons:

- The amount of income that the owner must report for federal income tax purpose is different from the net cash flow created by the rental property

- While the interest part of a mortgage payment is tax deductible, a cash outflow is not tax deductible.

-In the calculation of taxable income from annual operations,a deduction for -depreciation is allowed, however, the owner does not pay for depreciation on an annual basis. This creates a reduction in taxable income as compared to the actual cash flow.