Tax Deductions Exceeding Income
I have been analyzing houses for almost a year now. I understand the basics and really just need to dive in. One thing that has been a little confusing to me are the tax deductions. Off the top of my head, you can deduct the following:
- PMI
- Home Insurance
- Property Tax
- Managers
- HOA Fees
- Depreciation (80% of assessment divided by 27.5????)
- And the big one, interest paid on mortgage.
While analyzing the data on a few houses, I noticed that the first 3-4 years tend to have larger deductions than total income. I believe the largest reason for the high deduction is due to the "Depreciation Deduction". In one case, I calculated a RETURN of $290 just from my rental property lumped into the same pot as my current salary. Is this possible or am I deducting too much. This same property will cost me $5440 at the end of the mortgage where I am paying hardly any interest. Does this make sense to you experienced investors?
Just in case you want the numbers, I've posted them below:
- Purchase Price $165,380
Monthly Expenses
- Mortgage: $630.69
- PMI: $0
- Home Insurance: $66.67
- Property Tax: $157.50
- Manager: $256.62
- HOA Fee: 0
- Maintenance: (I don't deduct this) $166.67
Monthly Income
- Rent: $1400
- Vacancies: $116.62
- Income: $1283.38
Yearly Cash Flow
- $62.79
Yearly Deductions
- PMI, Home Insurance, Property Tax, Manager, HOA Fee: $5769.48
- Interest Paid on Mortgage: $5578.03
- Depreciation: $165,380 * 80% / 27.5 = $4811.05
- Total: $16,158.56
Adjusted Income
- Yearly income: $15,400.56
- Yearly Deductions: $16,158.56
- Adjust Yearly Income: ($758)
Most Popular Reply
@Alexander Monnin A Net loss on schedule E (for rentals) will reduce your active W-2 income, assuming you are under the passive loss limit.
- Daniel Hyman
