| Net positive cash flow from a rental property is | | | | gain or loss is reported on Schedule E of your |
| the equivalent to the Holy Grail for landlords; it | | | | 1040. |
| may seem mythical or even impossible to some | | | | By far, the most important tax deduction for real |
| would be investors, but what makes positive cash | | | | estate investors is depreciation of the building. You |
| flow attainable are the tax breaks given to rental | | | | do not spend any capital to take this deduction, |
| property investors. | | | | like you would for taxes or insurance, depreciation |
| The concept of owning a rental property is pretty | | | | is only a loss on paper, but is fully deductible. For |
| simple in theory, you buy a property, and over | | | | example, a home purchased for 200,000 dollars |
| the course of a few years the asset increases in | | | | will generate a yearly depreciation expense |
| value, while your tenant essentially pays the | | | | between six and seven thousand dollars depending |
| mortgage and lowers the loan amount. This | | | | on the price of the land in that area. |
| creates a scenario where the gap between the | | | | Add the depreciation expense to the loss |
| home price and the note amount, or your equity, | | | | generated by rental property, (assuming you |
| is continually increasing. | | | | have negative monthly cash flow) and you arrive |
| The one major hurdle with this premise is that is | | | | with your total tax deduction for the year. This |
| difficult to find a property where the area rent | | | | deduction will reduce your taxable income, and |
| for the home will cover the mortgage, insurance, | | | | your total tax bill, giving you the opportunity to |
| taxes, and repairs up front. This is what keeps | | | | greatly improve your net cash flow from the |
| most people out of the real estate investment | | | | rental. The easiest way to determine your total |
| game, negative monthly cash flow. | | | | tax relief is to multiply the tax deduction by your |
| The best way to negotiate negative cash flow is | | | | marginal tax rate, or the tax rate you pay on the |
| through knowledge of tax planning and tax | | | | last dollar you make. |
| deductions. Real estate investors are allowed to | | | | Have your tax professional crunch the numbers |
| deduct mortgage interest, insurance, taxes, home | | | | for you in regards to a rental investment, and |
| repairs, depreciation expense and any utilities bills | | | | you will see it is very possible to turn a three or |
| that are paid out of pocket. These expenses are | | | | four hundred dollar a month loss, in to positive |
| netted against rental income, and the subsequent | | | | monthly cash flow. |