@TurboTaxAnita so by adding back depreciation, did my rental income actually decrease from $20k to $100?  So I got less rental income?

You got less taxable income.  There's really a big difference between income and taxable income.  If you receive $1,000 in rental income, the only taxable part if the amount is after your expenses.  Since depreciation is an accounting adjustment to income but does not cost you cash like your other operating expenses, you get to keep more of that income without paying tax on it.  That's a major reason people love having rental income.

Unfortunately, you do have to pay tax on that depreciation if and and when you sell the property at a gain.  Your taxable gain is the difference between your cost and your sale price.  Cost is lowered by the amount of depreciation taken over the years, so your taxable gain becomes larger when you sell.  You really do need to take depreciation, though, because, when you sell, you get taxed on any depreciation you took, or COULD HAVE TAKEN.  so, you pay tax on the total depreciation whether you took it or not.  You are always best off to lower your taxable income each year by the depreciation amount.

Depreciation is a difficult concept, but it will become clearer the longer you own your rental

@TurboTaxAnita the loan officers must be using a different formula than what I see on the schedule E.  Loan officer said adding depreciation actually makes you look like you have more rental income.  Hard to visualize that statement when looking at schedule E.

That would be an incorrect comment for anyone to make, as it's mathematically impossible to claim more expense and show more income.  Loan officer was not using a correct formula or simply does not understand depreciation.

He may be trying to increase your spendable income by lowering your taxable real estate income, and is just not doing a good job of explaining this to you.

The loan officer is likely talking about how, in deciding what your actual vs your taxable income was for purposes of a loan, they add back the depreciation to see what your cash flow from the rental was.