Lessons From Leah #1: Depreciating Away Your Income Taxes

When it comes to real estate investing, few tools are as powerful—and underappreciated—as depreciation. It’s one of the key reasons so many investors are able to keep more of what they earn, legally reducing their tax burdens while building wealth through rental properties.

Let’s break it down.

How Real Estate Depreciation Works

Imagine you purchase a rental property for $250,000. For tax purposes, the IRS requires you to separate the land value from the structure itself, since land isn’t depreciable. Let’s say in this case, $50,000 of that total price is the land, which leaves $200,000 as the depreciable portion of the property.

Residential rental properties are depreciated over 27.5 years. So if we divide $200,000 by 27.5, that gives us approximately $7,272 per year in depreciation. That’s $7,272 in annual paper losses—losses that you didn’t actually experience in real life, but that reduce your taxable income on paper.

Scaling the Strategy

The more properties you own, the more powerful depreciation becomes.

• 10 properties? That’s $72,727/year in depreciation.

• 20 properties? You're looking at over $145,000/year.

This is how real estate investors legally “depreciate away” large portions—or even all—of their income.

Why Real Estate Professionals Win Even Bigger

Here’s where it gets even better: If you qualify as a real estate professional under IRS guidelines, you can use these depreciation losses to offset your active income—not just passive income. That means if you or your spouse are actively involved in real estate, you might be able to use these paper losses to wipe out income from a W-2 job, a business, or other non-passive streams.

This is one of the biggest benefits of becoming a real estate professional. It’s how many high-income individuals legally reduce their tax liability to near zero—year after year.

Want to Learn How?

📺 Watch our free webinar: How to Become a Real Estate Professional
💼 Explore more resources and tools for investors: www.slaughterinvesting.com

“Lessons From Leah” is a new series dedicated to helping investors unlock the strategies that fuel long-term success in real estate. Stay tuned for more insider tips, tax strategies, and wealth-building insights from Leah Slaughter and the team at Slaughter Investing.

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