Rental Propety Tax Advantages

[Shaun Reilly]

Owning rental real estate offers many tax advantages. I don't think anyone that has looked into the strategy for more than 15minutes would be surprised by that.

However it does drive me crazy when people talk about how great it is to carry debt against the property because of the tax savings.

People mortgage interest is a REAL expense! The only reason that you get to deduct it is because you spent the money.

A penny saved is a penny earned. Looking purely at the after tax net profits you will always be better off paying more taxes on higher income then spending REAL dollars to lower your tax liability.

Do you hope a tenant trashes the unit to get to write off more deductible repairs? NO! Do you get excited when your insurance premiums increase since the increase is a tax deduction? NO! Are you excited when your fully deductible property taxes increase? NO! Do you like having more vacancy as that reduces the taxable basis to start? HELL NO! Even for the amazing tax deductible mortgage debt do you seek out the highest rate you can get to maximize this deduction? NOOOOOOOO!!!!!!

This is not meant to bash using debt to acquire real estate. It is a very valuable tool to be able to buy property when you otherwise could not or to buy far more than you could with the same amount of cash (Or no cash at all). I'm also not saying that the ability to write off the interest on your taxes doesn't help the cause. I am only saying it drives me crazy when people cite that as a direct advantage of leverage.

Your tax advantages come from getting deductions from not spending any money (depreciation) or getting to write off things that you would have spent money on anyway (tools, supplies, some mileage, educational materials), not cash expenses directly tied to the property.

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All that being said anyone that would like to send me money, for every dollar you send me I will be more than happy to send you back 25-50 cents. :)