Pretax rate of return

Pretax rate of return

Gain on a security before taxes.

Pretax Rate of Return

The rate of return on an investment before capital gains or other taxes. Most of the time, when one sees a calculation of the rate of return it is the pretax rate of return. For a tax-free investment, the pretax and post-tax rates of return are identical.
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As an oversimplified example, assuming a 4% pretax rate of return on investable funds, no other income and no deductions allocable to the gross investment income, a married couple filing jointly must have over $6,250,000 of investable funds generating investment income to exceed the $250,000 threshold.
(82) The non-tax world rate of return on the investment in Country A, if owned by the investor from Country A, would have been 6.5%, (83) not 13% (the pretax rate of return).
By the cost of capital, I mean broadly the cost to a bank of raising equity and debt, or more precisely the real pretax rate of return that it must pay to attract debt and equity funds to finance its portfolio of assets.
For example, if the investor incurs excess annuity charges of 1.2% and has a 10% pretax rate of return, the breakeven holding period is 11 years in the 40% tax bracket, 13 years in the 35% bracket and 18 years in the 28% bracket.