Are Principal Payments Subject to Income Tax? Asking for a Friend

[Account Closed]

What's up everyone! A close friend and I just had a discussion regarding the tax treatment of P&I. Whoever is right gets a bottle of Tito's so, no pressure here! 

While talking up funding strategies, I mentioned to him that, based on my understanding at least, mortgage interest is expense-able and the principal payment IS NOT. My reasoning for this is the IRS provides depreciation of assets, so being able to also write off the actual cost of the asset would likely be 'double dipping.' 

My buddy, on the other hand, is under the impression that property owners can write off the principal as a business expense, regardless of structure (LLC, Sole Prop, S-Corp). He cites this as one of the best reasons to invest in real estate.

Now, I could be wrong, or he could be wrong, or we both could be wrong - I'm looking to YOU for guidance. Thanks!

[Brandon Hall]

Principal payments are not a deductible expense. The accounting entry would be:

Debit: Loan Payable

  Credit: Cash

No change to the P&L.