Depreciation not enough to offset taxes

[Azin Eftekhari]

Hi,

If the yearly depreciation is less than the Income minus all other expenses,  do we need to start paying taxes on the left over income?

example : 

Net Income : Rent - (mortgage+insurance+tax+expenses) = $7,500 per year
Property Purchase price : 200,000

Depreciation = 200,000 / 27.5 = $7,272 per year

Do I have to pay taxes on the $228?

Does this mean there is too much equity in the property? We did a refi last year. 

Thank you,

Azi

[Michael Plaks]

@Azin Eftekhari

Equity has nothing to do with your taxes, and refi has almost nothing to do with it. Your calculation is off, for the reasons mentioned by @Bill B. and for other reasons.

That said, if your net income after all expenses and depreciation is positive, you do pay taxes on that net profit. Which is usually a good thing indicating a healthy cash flow. 

And you might be able to reduce it further to zero or negative, with an accountant's help.