Depreciation tax deduction

[Grace C.]

So the tax code says that a rental property depreciates over 27.5 years, i.e. 3.64% a year. So does this mean that as a landlord, I dont pay tax until I make 3.64% x house price? 

And if I pay down 30%, it means that I dont pay tax until I make 12.1% on my investment? That sounds very good. Am I missing something?!

[JD Martin]

?

If you are using a property as a rental, it means you can deduct that percentage of the home's basis from your gross profits from the home. Example: If you bought a home for 100k, and the structure value is 80%, your basis in the home is 80k (I leave out closing costs, etc). That means you can deduct roughly $2900 in depreciation from your gross profits. If you rented the house out for 1k per month, that means, barring any other deductions, you owe tax on $9100 in profits. If you structure it right, it's entirely possible that depreciation + other deductions (loan interests, repairs, etc) can make your effective tax bill zero for that particular property, or in some cases even negative.