Landlord tax question

[tomtom]

Hello all, I am trying to have a better understanding of what my annual profit will be once my rental property is paid off.  I will provide real numbers.  Please tell me if I am correct in what I can expect in profits after the property is paid off.  Thank you, I appreciate it. 
These are the numbers IF THE PROPERTY WERE TO BE PAID OFF. 

Annual taxes: $4400
Annual Insurance: $998
Annual Inspection: $150

4400+998+150= $5548

5548 divided by 12= $462 owed each month (Tax+Ins+Inspec).
Rent = $1250 monthly

$1250-$462= $788

Okay so here is where I get confused.  From what I understand, after the property mortgage is paid off, uncle Sam takes approximately 25% of profits.  So with that being said, 75% of $788 = $591
So is it accurate to say that $591 per month will be my profit?  I am not happy with this considering I read that you should subtract $200 from monthly profits for repairs/vacancy.  With that being said, will my monthly profit really equal $391 ($591-$200)? 
In my opinion, $391 is not a good profit for a paid off property.  Can anyone with experience with paid off properties please elaborate on this?  Thanks, again I really appreciate it!

[Telecaster]

You're looking at it wrong.  Uncle Sam doesn't care if the mortgage is paid off or not.  All he cares about is how much money you make after you deduct allowable expenses and depreciation.  Mortgage interest is an expense, so once the house is paid off you don't get to deduct it anymore. But you don't have to pay it any more either. 

A major benefit of real estate investing is deducting the depreciation.   You must include that number in your P&L calculation.

[tomtom]

Telecaster, thank you for your response.  Lets say I don't have any expenses to factor in other then what I already mentioned.  I say this because it already has newer appliances etc.  Can you supply me a better idea of how much I would truly make per month after factoring in depreciation? 

[cchrissyy]

there are two huge pieces of this puzzle that you're missing

one is depreciation. I don't know the depreciable value of your property, but if it was say, $275k, you would deduct $10k a year of depreciation expense from your rental income and other expenses, which shrinks the taxable income in your example case to a $456 annual LOSS, no tax owed on the rental income at all.

https://www.zillow.com/blog/rental-property-depreciation-144131/
https://www.thebalance.com/depreciation-of-a-rental-property-2866809



the other think you need to know is that your "uncle sam takes 25%" rule is super simplistic. there is no particular tax rate for rental income, rather, it depends on everything else going on in your personal tax situation.

[tomtom]

cchrissyy thanks for your detailed response.  I'm really trying to get an idea of what my profits really will be? 
I know you mentioned that I need to factor in for everything else going on in my personal tax situation.  But I can tell you that I make approximately 59k per year with my regular full time job and I never owe anything, I pretty much break even. 
And FYI the rental property I am referring to is worth approximately 115k.  With that being said, can you offer a better idea of what I will earn per month when it is paid off? 
Thank you

[MoseyingAlong]

tomtom,

To understand your tax situation, I recommend downloading Schedule E and its instructions from the IRS website, IRS.gov, and working thru it line by line. That is the form used to report rental income and working thru it by hand will greatly incease your awareness of what is included and deductible.

[wageslave23]

take your profit of $788 minus $200 estimated vacancy/repairs = $588 X 12 = $7000 This would be your profit before depreciation.  Your depreciation would be about $4000.  So your taxable income is $3000.  $3,000 times your tax rate (25%) equals $750 in taxes owed.  So now go back to your profit before depreciation ($7000) and subtract taxes ($750).  This equals a profit of $6250 after taxes or about $500 a month.  This is not the most ideal return on your investment of $115k.  But you probably won't have $200 a month in repairs and vacancy and you will probably get some appreciation of the house.