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Adjusted Gross Income

Adjusted Gross Income (AGI) is a term that is often used in tax accounting and personal finance, but it can have relevance in the real estate investment industry as well.

In the context of taxation, the AGI refers to an individual’s total gross income minus certain deductions. It’s calculated before itemized or standard deductions, exemptions, and credits are taken into account. AGI can include income from various sources such as wages, salaries, interest, dividends, alimony, business income, capital gains, and income from a variety of other sources.

In the context of real estate investing, AGI can have an impact on the amount of money that an investor is able to deduct for certain types of expenses. For example, real estate investors may be able to deduct mortgage interest, property taxes, operating expenses, depreciation, and repairs from their gross income to calculate their AGI. This AGI could then influence the amount of taxes they owe.

Additionally, in a real estate context, AGI could be used to refer to the income generated by a property after factoring in expenses but before accounting for taxes and interest. This would be similar to the concept of Net Operating Income (NOI), though the two aren’t identical. Please note that this use is less common and could lead to confusion without proper context or clarification.

To provide an example, say a property generates $500,000 of Net Operating Income. Now assume that annual depreciation for the property is $400,000, and taxable income would be $100,000. If an investor falls into a marginal income tax bracket of 35%, the tax liability would be $35,000. Deducting this number from the pre-tax income of $500,000, after-tax cash flow would equate to $465,000.