0016 Mortgage Loans – Add Back In Depreciation

Here are some concepts to keep in mind that has major tax consequences, as well as major consequences for obtaining mortgage loans for your investment properties. Make sure when looking at your adjusted gross income, that the underwriters add back in depreciation for your total income allotment.

As a real estate investor, one of the benefits is the huge tax savings you get from deducting repairs, expenses, and upgrades. However, when obtaining loan documents, those “phantom” deductions can add up to adjust your income *too* low. I will explain how to set up a good foundation on why you should always opt for an expense to be capitalized over time (depreciated), and how it can affect this process. As you get your return at the end of the year, keeping this in mind early makes a huge difference when it comes time to apply for a mortgage. This is how you can get the deductions in real estate investing and still be able to obtain a mortgage loans, even if your adjusted gross income is low.

Not mentioned in the video: The time it takes to capitalize an investment (depreciate the total value) depends on what class/code given by the IRS. If its property vs furniture vs personal property, all gets depreciated at a different rate. Personal property is the fastest rate, but check the publication so you have a nice understanding for when tax times comes.

Update: At at 5 min29 seconds end, I said err on the side of deductions – I mean err on the side of the quickest depreciation.