--- title: Pre-Tax Cash Flow Definition description: Pre-tax cash flow is the amount of money an investment produces after the collection of revenue items and payment of operating expenses and debt service. image: https://www.realized1031.com/hubfs/social-suggested-images/Realized_Glossary_Graphic-4.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # Pre-Tax Cash Flow The amount of money an investment produces after the collection of all revenue items and payment of [operating expenses](https://www.realized1031.com/glossary/operating-expenses) and [debt service](https://www.realized1031.com/glossary/debt-service). This cash flow comes before the calculation of one’s income tax liability, and does not factor in deductions for [depreciation](https://www.realized1031.com/glossary/depreciation) allowance, mortgage interest expense or other non-cash items. Pre-tax cash flow allows investors to calculate their current return on investment, and when comparing to after-tax cash flow, provides context to the extent of tax shelter a particular investment may generate. Pre-tax cash flow is also referred to as "before-tax cash flow" (BTCF) or "equity dividend." We can calculate pre-tax cash flow using a simple formula: *Pre-Tax Cash Flow = Net Operating Income – Debt Service* Taxes can vary greatly from investor to investor. Comparing two different investments using after-tax numbers leaves out too many variables that can hide in the tax calculations. By removing tax calculations, pre-tax cash flow strips away investor tax-related differences. As many real estate investors know, a property can show a paper loss but generate positive cash flow. You can see this in the pre-tax cash flow value. It may be positive, but once deductions are applied, the after-tax value may be negative. However, the property still generated positive cash flow. Pre-tax cash flow is also used to calculate the cash on cash value: *Cash On Cash = (Pre-Tax Cash Flow) / (Total Cash Invested)* Cash on cash shows the investor’s return on actual money put into the property. Unlike pre-tax cash flow, cash on cash is a ratio rather than a dollar amount. 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Pre-tax cash flow allows investors to calculate their current return on investment, and when comparing to after-tax cash flow, provides context to the extent of tax shelter a particular investment may generate. Pre-tax cash flow is also referred to as \"before-tax cash flow\" (BTCF) or \"equity dividend.\" We can calculate pre-tax cash flow using a simple formula: Pre-Tax Cash Flow = Net Operating Income – Debt Service Taxes can vary greatly from investor to investor. Comparing two different investments using after-tax numbers leaves out too many variables that can hide in the tax calculations. By removing tax calculations, pre-tax cash flow strips away investor tax-related differences. As many real estate investors know, a property can show a paper loss but generate positive cash flow. You can see this in the pre-tax cash flow value. It may be positive, but once deductions are applied, the after-tax value may be negative. However, the property still generated positive cash flow. Pre-tax cash flow is also used to calculate the cash on cash value: Cash On Cash = (Pre-Tax Cash Flow) / (Total Cash Invested) Cash on cash shows the investor’s return on actual money put into the property. 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