3 Factors Affecting the Rule of Two : Part 3
3. Tax Deductions
That gives you a tax deduction which you can offset against other income. That tax deduction is not a real expense. It is not a cost to you in that year. If you take that into account and you take into account the extra tax now that you do not have to pay because you have got that tax deduction, you add that back into these figures. What you are going to find is that this formula does not work. It does not have to be two times. On a property that you are depreciating, if you want to work out this formula after tax, it will be approximately 1.6 to 1.7 ratio.
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