Why? Because Real Estate investing has this secret magical thing called depreciation.
Depreciation is a simple concept. We've all heard when you drive a new car off the lot, it loses 30% of its value. Your $100K car is instantly worth $70K - nice work.
Does that mean you can claim a “loss” on your taxes, like you would a losing stock trade, or a loan to your brother-in-law you're not getting back? Nope. The IRS doesn't see a purchase depreciating as a “loss”. Your new trinket is just going down in value. Sorry.
Except in real estate. Buildings, like cars, fall apart over time (as homeowners know), but unlike cars, the IRS lets you deduct that “depreciation” as a loss (if it's an investment property).
They make you spread it over 27.5 years (I have no idea why), and this phantom “loss” usually wipes out any taxable profit from rents, and if you're a “real estate professional” like us, you can use it to wipe away regular income too.
Hence our CPA telling us to buy another building to get more depreciation. And likely go broke doing so. Encore.
But if there's one thing I've learned about investing and home-buying - it will always, always, always break the bank.
But all the money gets spent, and putting dollars to work means they're not in your bank account
And thank you BofA for giving me a heads up before bouncing my checks.
Consult your CPA - this is not tax advice.
