Tax deductions for real estate

[Andrew Thomas Vedder]

Hi BP,

I’m struggling to calculate the potential tax benefits for owning a real estate investment property. 

My research has shown that the following are the greatest available rental investment property tax write offs: 

1) Property Taxes 2) Mortgage interest 3) Property Insurance 4) Property management fees 5) Maintenance costs 6) Depreciation 

So for instance let’s say my gross rental income for a property is 25K / year and for simplicity sake, let’s say all of the above deductions equal 12.5K in value. What does this mean for my tax bill at the end of the year? Do I only pay taxes on 12.5K? What if I only cash flowed $2000? What if I was actually in the hole $2000 in terms of cash flow? 

Any insight to this would be greatly appreciated. 

Thanks BP

[Clark Peterson]

You've correctly identified the primary tax deductions for owning a rental property. The net rental income (or net operating income NOI) would be taxed at your applicable effective tax rate for ordinary income. The only thing I would add is that when you take depreciation into account, which is a non-cash deduction, your net income subject to taxation can be quite a bit lower than in your hypothetical example.