5. How Much Money Will You Get Every Year?

In a very prominent spot, the brochure will have a statement about the anticipated yearly distribution. Note the words anticipated, and distribution. The syndicator has evaluated the property, but does not know and can­not always know whether throughout the years—or even next year—it will show a sufficient return to make the payments which are hoped for. So he usually tells you that he does not guarantee the return, that the return of 10, 11 or 12% is "anticipated". The word distribution is really the key word. Why do they use that instead of profit or income? Because the money which you receive every month is not just profit, but in the legal sense is partly return of capital. We shall explain in another chapter why this is so, but right now let us see how this affects your pocketbook.

Most financial publications and advisors address themselves to the taxpayer in the 50 to 75% income tax bracket. This book is written for the investor in syndicate participations who is more likely to be in the 30% to 40% income tax bracket.

Assume that you have $10,000 to invest and that you are examining the brochures of two syndicate offerings which seem substantially of equal merit. Both state that your anticipated distribution will be 10%. One brochure states that during the first five years, none o£ the distribu­tions will be reportable for federal income tax purposes. The other brochure states that during the first five years, 50% of the distribution will be reportable for federal in­come tax purposes.

This means that in the first case you keep the whole $1,000 every year during the first five years and need pay no federal income taxes on that $5,000. In the second case, you have to pay income taxes on $500.00 of your in­come every year. If you are in the 30% bracket, you pay $150 per year on the $500. Therefore you are keeping only $850 out of the $1,000 distribution. If you are in the 40% bracket, you pay $200 per year on the $500 which are taxable and you keep $800 out of the $1,000 distribution. Ten percent distribution may mean in one case 10% take home pay. In another, it may mean 82%, 8% or even less, depending on your tax bracket. If you want to know your net income after taxes, be sure to check what portion of the anticipated distribution is re­portable for federal income tax purposes.

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