RE Tax Modelling Question

Hi guys,

Quick question here in real estate private equity assuming you built the model to net levered cash flows (all pre tax) what adjustments would you make and generally how would you model out the income taxes?

What’s a simple way to turn net levered cash flow (post-am fees) to your taxable base for income tax?


Levered Cash Flow 


+ Principal Payments on Debt

- Depreciation & Amortization (this can be very nuanced, but if it's just for simplicity sake, just take total cost less land value and divide by 27.5 for mf and 39 for commercial)

= Taxable Income (at the partnership level)

* Tax Rate

= Taxes 

Levered BT Cash Flow - Taxes = Levered AT Cash Flow (at the partnership level)

Since you mentioned this is for PE I'd assume the asset is owned in an LP or LLC or some other vehicle so you'd need to read that doc and model out the taxable income amongst the various partners or classes to figure out a true AT cash flow. 

Thank you!

Assuming there’s AM fees and a promote structure and you are looking to get to net levered returns AT how would you go about including these.

Would you simply include AM fees and do the same thing - calculate the taxes then deduct them from the original levered cash flow and run that line through the promote calcs?

Why are you adding back capital costs / principal payments ?

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