How to factor in the depreciation and losses into your ROI

Question

Maybe this has been posted before, but I'm not finding it. After speaking with our accountant, it seems like we need to be accumulating a portfolio to help offset the W-2 earnings.  How do you calculate the depreciation received and the passive losses into your ROI calculations? It seems that those issues should play a role in what kinds of returns I should be looking for.  Hope this question makes sense!

Krista Roodzant · Answer

@ Ali Boone thanks for the input. Maybe I’m not asking it correctly. I’ll speak with my accountant about it and try to get it clarified.

Ali Boone · Answer

When you say calculate those things in order to determine your ROI... are you just more accurately trying to figure out your exact projected cash flow on the property?

Typically, for the most part, those "losses" will just offset the taxes you'd normally have to pay on the income you receive on the property....so most people just cancel each of those out. It may go a little more one way or another, but fairly marginally.

If that pertains at all to why you are asking...

Krista Roodzant · Answer

Thanks @John Leavelle, I'm going to be emailing her next!

John Leavelle · Answer

Howdy @Krista Roodzant

You question is a little confusing.  I assume your accountant is saying you need to start acquiring Rental properties to help offset W2 income.  The way it may help is Operating Expenses and Depreciation are deducted from your positive Cash Flow.  It can create a passive loss on paper.  This loss can be used to reduce your W2 income (with limits). The other benefit derived from Rental property investment is greatly reduced taxes (or no taxes) on investments as compared to stocks or CDs.

I am not a CPA nor a topic expert ... just my understanding.  Depreciation is not a factor in calculations for ROI.  It is strictly a reduction in taxes due.

Perhaps @Amanda Han will chime in and give you a better response.

Hope this helps.