In our Rental Property Income Series, we're looking at the ways in which a rental fourplex can return cash and tax advantages to the owner. These include:
We will talk about the mortgage interest deduction in this article. Using our example property purchased for $325,000 with a $260,000 loan, our mortgage interest is approximately $16,814 the first year of the loan. Looking back at our rental cash flow and depreciation calculation, we're sitting on a potential tax liability on $25,999.
$25,999 - $16,814 = $9185
This is far from a bad thing, as we've seen that we are pocketing $15,192 in cash, realizing property appreciation and only paying taxes on $9185. Remember that other articles in this series are discussing depreciation and other income items and deductions. In the case of this mortgage interest deduction, the IRS is helping you to keep this property while it appreciates in value, as well as enjoying a positive cash flow with less tax liability at this time.