Investors & landlords

The reason I see it as a problem is because technically that income isn't profit.. I'm using that rental income entirely to pay the mortgage..

Situation 1: I lived in property and expense the interest and taxes but couldn't expense depreciation, repairs/maintenance, etc but also did not have any rental income.

Situation 2: I rent property and still can expense the interest and taxes AND now can also expense depreciation, repairs/maintenance, etc BUT now also need to account for rental income.  Since this rental income is used entirely to pay mortgage and because mortgage is not deductible and because the expenses will likely not exceed or match this rental income.. I am left with a "paper income" of sorts and have to pay tax on it when there was in reality no real income..  Also, any additional expenses to match or exceed the rental income will be coming out of pocket so it makes no sense to spend more either..

that is my dilemma, I was wondering 1. whether all of that is true because I'm not a professional in real estate or tax and 2. whether there was a way around it, which it doesn't seem like there is