Taxable Vs. Tax-deferred Calculator

This calculator will help you to compare the future value and annualized yield differences between a taxable and a tax-deferred investment.

Amount invested ($):
Expected annual rate of return (%):
Number of years invested (#):
Marginal tax rate (%):
Percent of growth that is taxable (%):
Results Taxable Tax-deferred
Future value:
Annualized yield:

Deferring Taxes Wisely

Any investor knows that one of the single biggest factors affecting their real estate investments is taxes. In a normal tax situation, the amount of tariff paid on the property or building is a significant percentage that can make up a large chunk of the acronym known as the PITI (Principal Interest Taxes Insurance) that is the mortgage payment. But investors who are eligible for a tax deferred scenario are able to defray this expense by delaying the tax bill until later on in the process, thereby saving funds and increasing profit in the first phase of the investment.

What Does a Tax Deferred Situation Look Like

When a borrower gets the chance to defer their taxes until they make a withdrawal, they benefit from this tax advantage by keeping more money in their pocket for a longer period of time – and therefore out of the hands of the tax man, or woman, for that matter. Other tax advantage schemes like this include investments where one pays taxes at the normal rate on money that goes into the pool but gains the added bonus of being eligible for tax free withdrawals from the account.

How to Use This Calculator

When considering investing in the context of real estate, using this calculator is one of the first things you will want to do as a savvy and forward thinking financier. By analyzing the proposed value of both a taxable investment with the percentage already taken out and a non taxed investment with the percentage put off, it is easy to see by the numbers just how much cash it will mean to your bank account to acquire a tax deferred investment. The difference in annualized yield can be quite significant when the tax charge is postponed initially.

Let us consider an example calculation to get a better idea of the difference between the taxable and tax deferred end products. In a theoretical investment scenario where an initial $50,000 is put into the account with a 20% expected annual rate of return, a marginal tax rate of 30% and a life time of 10 years, we see a 3% difference in annualized yield in the end. The percentage of the investment's growth that is taxable is equal to 50%. The expected future value of the investment that is taxable is $185,361.07 with a 14% yield, while the anticipated sum of the deferred tax investment is $240,341.42 with a 17% yield. The difference between the two end totals adds up to just shy of $55,000 all told. This is a very wide gap based on tax alone, and is real incentive for investors of the future to explore tax options with their accountant closely as they consider whether tax delay is an option for their particular circumstances.

As the real estate economy is opening slowly back up to more cautious investors after the scanty opportunities that have been present over some years of the past decade, the chances for further and bolder investments in property are beginning to boom again. Possibilities like tax deferral do their part to open up the world of real estate investing once again for those who need the reassurance of a higher annual yield.