Hello 

Real estate is one of the two tax shelters you can use to effectively put a dent in your adjusted gross income numbers.  One of the primary ways real estate gives you a tax advantage is through depreciation of the real estate.

I know lots of folks that have healthy six-digit rental incomes and don’t pay a dime in income taxes.  Their income received through rents is wiped out by the depreciation of the real estate.  The problem is, depreciation only generates a passive loss, which can only be used to offset passive income.  Depreciation will not offset your W-2 income.  But rents are passive income and they can be offset by the depreciation.

Believe it or not, accountants often screw up depreciation calculations.  For example, they look at an apartment building and say that is a commercial building, so they take the 39 year depreciation allowed on commercial buildings.  They take short term rental houses and say they are houses, so they take the 27½ year residential depreciation.  They depreciate the total value of what you paid for the property. 

These are all fatal mistakes, and there are a number more that I go through in my new YouTube video on real estate depreciation.  To learn more give it a look at https://youtu.be/M3VCgN4HreU.