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Saturday, February 16, 2013

Income Tax Impact

Some reader questions have been about experiences with respect to income and bottom line returns. Here are some experiences:
- Our properties were acquired in 2009, 2010, and 2011 respectively.
- All are rented through National Rental Pros, and they have done a very good job of keeping them occupied
- Of the 3 properties, we had one "accounts receivable" problem for 5 or 6 months, but it was a personal decision to work with the renter and not evict right away, so that impact could have been reduced to a month or two at most.
- Overall return on capital invested has averaged 5.7%, 7.6%, and 5.3%. That is average return for a 12 month period, not including the accounting impacts of depreciation. I.e. Those numbers are based on cash flow.
- No US or Arizona Income Tax was paid in 2009, 2010, or 2011, because the "profit" allocated to each partner was less than the allowed exemption. The exemption is $3800 federally, and $2100 at the state level per partner.
- In 2012 we paid about $400 total between federal and state tax on about $6400 income...for each partner. Of course this depends heavily on not having any other US income so the exemption has full effect. If the exemption was already used for other income, it would be different.
- That US tax should be recoverable as a "foreign tax credit" on our Canadian tax returns. We haven't done those yet, so time will tell.

1 comment:

  1. I thought there is a US-Canada treaty that allows Canadians not to pay US tax if the income is below $10k