How does depreciation affect cashflow?

[Mike McCarthy]

I'm doing an analysis of one of my rental (BRRRR) properties. According to my QuickBooks, I'm doing ok. $480/mo cash flow. Plus another $250/mo mortgage pay-down. Feeling pretty good about myself.

But then I looked at the Income and Expense form my accountant filed with my 2019 taxes (Form 8825) and it includes $13K in depreciation.  So according to that, I'm -$8K for the year on this property.

How should I be looking at this? Happy that I have $480/mo in my pocket? Or every year I'm losing $8K because the property is degrading over time? My cash flow numbers above don't include Capex withholding, only minor repairs as needed.

[Caleb Genry]

@Mike McCarthy that's a fantastic thing! You should be looking at both. Depreciation is the magic of real estate because historically it is an appreciating asset! That's exactly what you want, to be making money, but showing a loss for taxes.