landlord taxes - help me understand the benefits please!

[Corey Demuth]

I keep reading about how there are so many benefits to being a landlord, because you can reduce your income taxes and such...

Can anyone please explain how it works? Like a basic overview? I have heard people talk about appreciating/depreciating but it went over my head a bit... how does it work?

Also, an investor was telling me that you can deduct the interest you pay on property loans, and effectively bring your taxable income down to a very low percentage... but I also heard that you can only deduct the interest on your primary residence. Plus wouldn't there be some kind of system or rules in place to prevent people from avoiding paying taxes by owning a lot of property?

Lots of conflicting information, please clarify this for me! Thanks!

[Richard Warren]

The real simple version:

Any expenses directly relating to your business can be deducted.

Interest on Investment loans can be deducted.

Depreciation allows you to deduct a certain percentage of the value of buildings and property (not land) each year. The IRS has a depreciation schedule for all different types of property based on their life expectancy. There are caps on the amount that you can deduct. Another thing that people conveniently forget is that depreciation is “recaptured†when you sell.

These write-offs are used to reduce your taxable income but are subject to limitations imposed by the IRS. A real estate investor should, at the very least, have a basic understanding of how these deductions work. There are plenty of books on real estate investing that examine this.

:cool: