Are rental properties netting a loss worth it for tax benefits and equity? Details in comments

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Rental income ~50k, after all the related costs, I net ~6k loss (according to tax professional).

I get 11k in equity a year and my property value increases yearly. It also helps offset taxes. Is this worth it? Am I thinking about it the right way?

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Is it a “tax loss” or a true cash loss? But yes RE is an effective tax shelter

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A cash loss means you spent more money than you brought in. A tax loss means your taxable income is negative, often due to non-cash expenses like depreciation, even if you actually made money.

So, you can show a loss on paper (for tax purposes) while still generating positive cash flow and building equity in real life

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What state is this property in? Sounds like you might be trying to use the short term rental loophole. If so, be sure to ask your accountant about what depreciation recapture looks like if you try to sell it in 2 or 3 years when you’re annoyed with how much effort it takes to manage a short term rental.

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If they lived in that home for 2 of the last 5 years they still get the capital gains exemption at sale

That is a cash loss to me and if you are cash flow equity that is hard no.

Sounds like a tax loss but cash flow positive. It’s the depreciation that’s creating the tax loss. OP is cash flow positive. This sounds like a good investment.

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F

Typically operating at a continual YOY loss is not worth it. Do you expect large appreciation over the near term? That’s the only way that can counter. If you continually report a loss on your taxes, you could be demoted to operating a hobby (vs a company) as a company is to make money. If that happens, then you may have a hard time starting a new company in the future.

In my experience, lots of real estate investors net a tax loss every year without any issue so I don’t suspect your concern of it being a hobby to be considered a large risk

I think the biggest question here is do you see long term prospects being positive for this property? I don’t think the loss is worth it just for the tax benefit, but if you think the property will go up a lot in the future, or you’re paying down a ton of principal every year you might be able to justify it. I would do the math to see if you sold it this year, how much money would you net and compare that to what you would net in 5, 10, or 15 years after accounting for appreciation, principal pay down, and yearly cash flow.

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