I'm a little confused by how you word your question. Some terms you may be looking for on a rental property are "Gross rental income" - the total rent paid.. "Net Rental income" -- the income left after paying expenses of RE taxes, management, repairs, insurance, etc. "Net Taxable Income" is the amount left after reducing Net Rental Income by tax deductible expenses - typically interest and depreciation. Many net leased rental properties already suffer what is known as phantom income tax (this is when the tax assessed on your Net Taxable Income is in excess of your Net Rental income after paying any required debt service). Properties may start out without such phantom income tax but edge closer to tha threshold each year as depreciation remains constant but the interest componentn of a loan typically declines year by year, pushing the taxable income of the property higher with time. Obviously if federal tax rates were to increase, the tax burden on any Net Taxable Income will increase and that will serve to push the threshold of phantom income tax to a lower level than before. A property that was not previously incurring phantom income tax could suddenly be put in that position and one that already was paying phantom income tax will be paying more phantom income tax. With that all as background, the answer to your query is YES... a tax increase could render some real estate investments to be no longer sustainable by the owners of the real estate.
Nov 10, 2009