I thought rental income = rents - expenses
Depreciation is considered an expense. So wouldn't adding depreciation reduce your rental income according to the formula above? A loan person says adding depreciation actually increases your rental income. I don't understand.
So I forgot to add depreciation and proceeded to amend my taxes.
On schedule E (original taxes without depreciation added), line 24 "income" is $20,000. On schedule E (amended taxes after adding back depreciation), line 24 "income" is now $100.
However, on schedule E, line 25 "losses" went from -$17,000 to -$5000. Adding depreciation reduced my loss.
But line 26 "total rental real estate income/loss" is the same number.
So it looks like my rental income reduced to $100 from $20,000 after adding back depreciation. Why is it that loan officers say when you add back depreciation, your rental income increases?
