Pay no taxes? I’m listening.

[Jeff Cantrell]

I’ve been in realestate investing for over 10 years. I continually hear people talk about “paying no taxes” being a benefit to owning realestate, but I’ve yet to have heard a single explanation of how that’s possible if you’re making a profit. Properties have no mortgages and all have great returns.

Someone please, let’s hear a comprehensive explanation of how you make a profit and don’t pay any tax.

[Bill B.]

You buy a $200k townhome that you own from the studs in (so that it’s 100% depreciable for simplicity’s sake.)

20% down 4% interest in 30 year $160k loan is $765 of which approximately $535/mo ($6420/year) is interest. Insurance is say $750/year and property taxes are $2,000/year.
. 
 you get $1250/mo rent ($15k/year)
 

So you have $15k minus $6420 minus $750 minus $2,000 = $5830 “profit” and $3,070 cashflow. 

But, you get $200,000 / 27.5 years in depreciation. $7272/year. So the IRS say your profit is $5830 minus $7272 or a loss of $1442, so you pay negative taxes (a credit) which is  even better than zero taxes. Even though you put $3,000 in your pocket.