Beginner Question- Taxes on down payment

[Rahul Gupta]

Hello, If we have 100k to invest and we go a hard money lender, buy 4- 5 properties that are 100k each with 20% down and then rent them out, would we be able to write off a total of 100k or 400k(Total down payment or the total property value) that very year?

[JD Martin]

Quote from @Rahul Gupta:

Hello, If we have 100k to invest and we go a hard money lender, buy 4- 5 properties that are 100k each with 20% down and then rent them out, would we be able to write off a total of 100k or 400k(Total down payment or the total property value) that very year?

 Neither. You don't "write off" your purchase price or principal. You get to depreciate 1/27.5 of your basis in a property each year, plus repairs, maintenance and other costs, and loan interest on the property. So in your example, if you buy 4 $100k properties that have an 85% basis (you don't get to depreciate land), pay $10k in interest on each property, and spend $5k on repairs and maintenance on each property, your deductions would be:

$3091 depreciation x 4 ($100k property x .85 basis /27.5 years) = $12634

$10k interest x 4 = $40000

$5k repairs etc x 4 = $20000

Total deduction = $72634

If you bought one property, just divide this whole thing by 4 = $18159 deduction for one house.

Obviously this is super simplified but you might want to talk to a tax professional that specializes in RE taxes before you do anything. There are ways to do things like cost segregation studies to accelerate some depreciation but there are also downsides to that approach that you need to understand, and in any case you're not going to write off your total money spent on the property in year one no matter what you do - it makes no difference from a tax perspective if you pay cash or borrow money, other than the interest paid.