Can anyone help explain how this works for an investment property?  

In order to arrive at an estimated value of tax deductions for a rental property would you:

A) Add up your annual depreciation, operating expenses and mortgage interest and then multiply that amount by your current tax bracket for actual cash value. (so for example you had $20K total expenses multiplied by lets say a 20% tax bracket = $4,000 back in your taxes)

OR

B) Calculate your total "paper loss" by subtracting the depreciation, mortgage interest & operating expenses by  your total rent revenue, and that is the amount that is "tax deductible"?  (so for example you had total rent revenue of 18K but total paper loss of 20K = $2,000 tax deductible) ? 

Noob question I know....