After Tax Cash Flow

After Tax Cash Flow


This material is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.

Full Transcript

In previous segments, we’ve explored the wealth building potential of a 1031 exchange by deferring taxes and keeping more of your equity at work.

Another potential tax-advantage of DSTs is the monthly cash flow distributions. Just like direct property ownership, cash flow received from DSTs is eligible for certain income tax shelters.

Pre-tax cash flow is not the same as taxable income. Pre-tax cash-flow is equal to net operating income less debt service, while taxable income is equal to net operating income less mortgage interest and depreciation allowance.

Thus, when evaluating DST opportunities, pre-tax distribution rates may not be the appropriate unit of comparison. For example, if two investments have identical pre-tax distribution rates, but one has no income tax shelters, while the other’s distributions are fully sheltered, then the after-tax distributions may be significantly different.

It is important to recognize that

  • Income tax shelters are specific to the investment and an individual’s tax situation; and
  • While the use of debt may provide income tax shelters, it may add risk to an investment.

However, when utilized in consideration of an investor’s risk tolerance and investment objectives, income tax sheltering strategies may significantly increase an investor’s after-tax cash flow. Because it is not how much you make, but how much you keep.