When we make payments to the impound account, they must come out of the property s cash flow. To derive our property s Taxable Income, we take its income and subtract everything that is properly tax-deductible. To derive its Cash Flow, we take all income and subtract everything that was actually paid out. Cash Flow and Taxable Income have important differences. Cash Flow is real world.
Money comes in, money goes out.
You earnestly hope the difference will always be a positive number, and if it is, you can take it with you and even spend it. Taxable Income is not quite so real since it is whatever the tax code allows for deductions and depreciation. After Taxes - the internal return The true bottom line is Cash Flow After Taxes. Taxable Income may be negative as well as positive. If it is, then it may actually result in a lower tax liability and increase our Cash Flow After Taxes by sheltering other earnings.