A small apartment building has a NOI of $40,000, interest expense of $14,000 and annual depreciation of $6,000. Assuming a 30% tax bracket, what is its income tax liability?

Income Tax Liability will be $ 6000.

Explanation:

Given data

NOI = $ 40000

Interest Expense = $ 14000

Depreciation = $ 6000

Income Tax rate = 30 %

Income Tax Liability = ?

To find income tax liability for the year, first we have to calculate annual taxable income.

Taxable income = NOI - Interest expense - Depreciation

Taxable Income = $40000 - $ 14000 - $ 6000

Taxable income = $ 20000

Income Tax liability = Annual Taxable Income x Income tax rate

Income Tax liability = $ 20000 x 30 % = $ 6000.