rental property tax example - please advise!
I am still a bit confused about the whole topic of tax benefits from having rental property. Can anyone take a look at this example, and let me know if I am doing this correctly?
An investor has a full-time job making 60k. He buys a 2-family property for $60,000; the mortgage payment including tax and insurance is $550/month. The total rent he collects between the two apartments is $750/month. (so the profit is $200/month.)
For the sake of this example, let's just assume that in the beginning, of that $550 payment, $300/month is going toward interest on the mortgage.
So my calculations would be that the rental profit is 2400 for the year, which is considered a capital gain.
The interest paid would allow the investor to deduct 3600.
Furthermore, the building can be depreciated over 27.5 years. So, 1/27.5 * $60,000 = 2181.81, which should be the amount he can deduct for depreciation each year. So in fact, between the interest deduction and the depreciation deduction, he can actually deduct 3600+2181.81, or 5781.81. Subtract the 2400 profit he made by collecting rent, and you have $3381.81 that he can deduct - so essentially just by having this rental property he is shielding 3381.81 of his salary from his regular job, from being taxed. And on top of that, he makes $2400.
Am I correct or am I horribly misunderstanding how this all works? Also, did I miss out on any other potential tax benefits the investor could be getting in this example?
Thanks!