Phantom Cash Flow in Real Estate: Depreciation on Rental Properties Offers More Money Through “Losses”

When a business shows a loss, it’s not a good thing. After all, when a loss is shown it’s because money was lost, right? Not so with real estate.

Rental properties have unique rules that differ from investments in stocks and bonds, and the type of tax deferral that is usually admired in Roth IRAs can seem paltry compared the deferrals rental property owners have available to them.

Rental Property Owners Can Defer Taxes Forever

People who own rental homes can easily operate at a loss. While this is not the main goal for most entrepreneurs, the truth is that with a rental property, a person can appear to lose money on paper while actually taking in a monthly profit.

This is because of depreciation. A rental property might bring in $1,100 every month that covers the monthly mortgage of $975 along with $50 in average maintenance and repairs, netting a profit of $75. But when depreciation is added ((total cost of house plus money invested)/31 years) the yearly cash flow of $900 goes into the red, netting a loss rather than a profit. With that loss comes a deduction.To know the exact numbers you can ask an Realtor in Dallas.

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