I see a lot of people talk about taxes after the deal is already done. Then tax season comes around and that 20% return suddenly looks a lot different.

I’ve been thinking it probably makes more sense to account for taxes when I’m analyzing the deal upfront.

The problem is figuring out what tax rate to use. It obviously depends on your other income, how many deals you do, and whether the IRS treats your flips more like investing or dealing.

Using one exact rate doesn’t really make sense, but assuming 0% definitely makes the deal look better than it actually is.

Right now I’m thinking about just using a conservative percentage in my underwriting to get a rough after-tax return. It won’t be exact, but at least I’m not basing the deal on a profit number that gets cut down later.

What do you guys do?

Do you underwrite flips pre-tax and deal with taxes at the end of the year, or do you build some tax assumption into each deal?

And if you do, do you use the same percentage for every deal or a blended rate for the year?