What Every Real Esate Investor Needs to Know About Cash Flow

[Juan Mendoza]

Hi everyone, 

I have a question about Frank Gallinelli's classic What Every Real Estate Investor Needs to Know About Cash Flow. I'm reading his chapter "How to Estimate What an Income Property is Really Worth," with the sub-heading "Taxable Income or Loss," and I'm having trouble understanding something he writes. I'm hoping someone can explain this to me in a different way, as I'm new to RE investing. 

Gallinelli says, "Another item that affects your taxable income is amortization, which (in this context) refers to the process of taking a partial annual tax deduction for an item you are not allowed to expense in a single year. A good example of a cost that must be amortized is the premium you pay for securing a loan, commonly called 'points.' You typically pay this premium in one lump sum on the day you close the loan, but you must amortize it over the life of the loan. So, if you take out a 240-month investment-property loan for $720, 000 that requires payment of 2 points (2%, or $14,400), you can deduct $60 per month, or $720 for each full tax year."

My questions are:

1) Does this mean that I can get a tax deduction for my primary residence for my monthly premiums?

2) And, what is Gallinelli saying, in other words, regarding this quote about taxable income or loss?