1
The verdict
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Cash put in
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Cash back out
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Net profit
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2
The cash picture
Every dollar in and out, in the order it happens.
Why this deal exists — the REPS strategy
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What this means for your household this year
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Cash out — Day 1
What you need in the bank before you close
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Down payment—
Closing costs (est. 2.5%)—
Cost segregation study− $8,000
Cash reserve (14 months runway)—
Total cash to have ready—
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Cash flow — Every Month
Rent coming in vs. costs going out
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Rent collected (after vacancy & Airbnb fee)
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Mortgage payment (P&I)—
Insurance + property tax + utilities + maintenance—
Monthly cash flow—
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Cash in — Tax Refund / Offset
The paper losses reduce your tax bill
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Year 1 — big year (bonus depreciation)—
How is the Year 1 savings calculated? ▸
show
Years 2–28 — straight-line savings/yr
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Total tax savings over hold period—
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Cash in — Sale Proceeds
What you walk away with when you sell
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Sale price (after 5 yrs appreciation)
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Minus: agent & closing costs (6%)—
Minus: remaining mortgage balance—
Minus: depreciation recapture tax
What is this and why does it exist? ▸
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Minus: capital gains tax on appreciation—
Net cash at closing—
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The full scorecard
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Total cash invested
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Down payment + closing + cost seg + any monthly gap covered
Total cash returned
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Tax savings (all years) + net sale proceeds
Net profit
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3
The three risks that could break this deal
Calculated from your actual inputs — not generic warnings.
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Dig deeper
How does the tax savings work?
The paper loss mechanics, bracket impact, and price scenarios
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Year 1 paper loss (federal)
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Federal tax savings
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California savings (smaller)
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CA disallows bonus dep. Only S/L + 20% MACRS in yr 1.
Future recapture at sale
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Plannable. Still worth doing — you got the savings upfront.
Which tax brackets your losses hit
Tax still owed
Saved by losses
What if you bought at a different price?
| Price | Paper loss | Fed savings | CA savings | Total savings | Net after $8K | Future recapture |
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How is my mortgage payment calculated?
The formula, what goes to interest vs. principal over time
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You borrow — — that's your purchase price minus your down payment (—). The bank charges interest every month on what you still owe. Your payment is fixed for 30 years — but in the early years, almost all of it is interest.
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Interest vs. principal over the life of the loan:
Interest (cost of borrowing)
Principal (building your equity)
The principal portion isn't lost — it's equity. It shows up when you sell.
Year-by-year cash picture
How the economics change over your hold period
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| Year | Cash flow | Tax savings | Combined | Running total | Equity built |
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Planning estimates only. Tax calculations use IRS Rev. Proc. 2025-32 (2026 MFJ brackets) and CA Revenue & Taxation Code. 100% bonus depreciation per OBBBA (signed Jul 4, 2025). Exit assumes 6% selling costs, 25% federal recapture rate, CA ordinary income rate on recapture, 20% federal LTCG on appreciation. Mortgage is 30-yr fixed amortization. All figures require CPA verification before any financial decision.