Another Year
MONEY MEETS TAX · EPISODE 24
Irvine · September 2026
Money & Tax in this episode
A year as landlords · Whether to keep the house · Cash flow vs. taxable rental income
The email came from their tenant on a Thursday night.
Hi Evan and Daisy,
We’ve really enjoyed living here and wanted to ask about renewing for another year. No rush, but please let us know when you have a chance.
Evan read it twice.
Daisy was on the floor with Jiwoo, trying to keep a wooden block out of her mouth.
“They want to stay.”
“That’s good.”
“Yeah.”
He kept looking at the screen.
Daisy noticed.
“What?”
“Nothing.”
“That’s your face when something became a spreadsheet.”
“It already has a spreadsheet.”
“Of course it does.”
She took the block from Jiwoo and replaced it with a soft toy.
Evan turned the laptop toward her.
“It’s almost been a year.”
The Anaheim house had become a rental the previous September.
At the time, renting it had been enough of a decision. Evan had just started the Irvine job. Daisy was pregnant. They were moving. Selling the house at the same time would have added one more large decision to a year that already had enough of them.
So they rented it.
One tenant. One lease.
See how it goes.
Then Jiwoo arrived.
Then the Irvine condo.
Then maternity leave, Daisy’s project, childcare.
The rent showed up every month, the mortgage went out every month, and Anaheim mostly stayed where they had left it.
Until the email.
Daisy sat on the couch.
“So. Do we want them to stay?”
“I think so.”
She nodded toward the laptop.
“I mean us. Do we want to keep the house?”
Evan leaned back.
“I haven’t really thought about it that way.”
Daisy gave him a small smile.
“I know.”
Evan opened the folder he kept for the property.
Mortgage statements.
Property tax.
Insurance.
A plumber.
The HVAC service call from June.
A receipt for a garage-door repair he had forgotten about.
Then the rent deposits.
Daisy watched him scroll.
“So are we making money?”
Evan looked at the screen.
“Depends which number.”
“Okay. Walk me through it.”
He opened the mortgage statement.
“The payment mixes principal and interest. The principal reduces what we owe, but it isn’t a rental expense.”
“So it uses cash, but some of that cash is building equity.”
“Right.”
“Then property tax.”
“Expense.”
“Insurance.”
“Expense.”
“Maintenance and repairs.”
“Usually.”
“And the garage door?”
“Emotionally and financially.”
Daisy smiled.
Evan started sorting the year into columns.
Not perfectly.
September was not over yet. Some bills crossed months. The property-tax payments were uneven. The mortgage account showed principal and interest separately.
The answer depended on what he counted.
Cash that came in.
Cash that went out.
Debt that disappeared a little at a time.
Expenses that would show up differently on the tax return.
Daisy looked at the screen.
“And the tax number?”
Evan opened another file.
“That can be different again.”
“Because?”
“Depreciation.”
She waited.
“The building gets depreciated over time. It can reduce the taxable rental income even though we’re not writing a depreciation check every month.”
“So the tax return can make the house look less profitable than the bank account does.”
“Yes. It could even show a loss.”
Daisy looked back at the numbers.
“Useful loss?”
“Maybe.”
There was the word again.
She smiled.
Evan kept going.
“Rental losses are generally passive. So a tax loss doesn’t automatically mean we can use all of it against my salary or consulting income.”
“So we can have a loss we don’t get to use right away.”
“Right.”
Daisy stared at him for a second.
“You’ve somehow made losing money less useful.”
“I didn’t write the rule.”
“I know.”
Jiwoo pulled herself up against the coffee table, stayed there for two seconds, then sat down hard.
Both of them looked over.
She seemed surprised but unbothered.
Daisy turned back to Evan.
“So forget the tax for a second.”
“Okay.”
“If we didn’t own the Anaheim house today, would you buy it as a rental?”
Evan stopped.
He looked at the numbers.
Then at her.
“That’s a different question.”
“It’s the same house.”
He knew what she meant.
They had bought the house because they wanted to live there.
The neighborhood had worked.
The payment had been manageable.
They had wanted a place of their own.
None of those were investment criteria.
When they moved, renting it had solved the immediate question.
Now almost a year had passed.
Daisy picked up her phone.
“What would we pay for it today?”
“I don’t know exactly.”
“What would it rent for if we were looking at it fresh?”
“Probably around what we’re getting.”
“What return would that be?”
Evan looked at her.
“You want the spreadsheet now.”
“I want to know whether we own a rental property because it’s a good rental property.”
She glanced toward Jiwoo.
“Or because we used to live there.”
That stayed between them for a moment.
Evan opened a real-estate site.
Then closed it.
“Sale price isn’t the only thing.”
“I know.”
“There’d be selling costs. There could be taxes. And if we keep it, there’s principal paydown. Maybe rent changes. Maybe the house value changes.”
“Maybe another plumber.”
“Definitely another plumber eventually.”
Daisy nodded.
“So we don’t decide tonight.”
“No.”
“But we should actually decide.”
“Yeah.”
That felt different.
For the last year, the Anaheim house had been something they already owned.
Mortgage.
Tenant.
Repairs.
Tax return.
A list of things to manage.
They had not asked it to compete with anything else they could do with the money.
Their Irvine mortgage.
Cash reserves.
Daisy’s work.
Evan’s business.
Investments.
Time.
Daisy reached for the laptop again.
“Can you do one thing?”
“What?”
“When you look at it, don’t start with what we paid for it.”
Evan nodded.
“Start with what we’d do if the money were cash today.”
He looked at the tenant’s email, still open in another tab.
They had asked a simple question.
Another year?
Evan starred the message.
“We’ll answer them this weekend.”
Daisy picked Jiwoo up from the floor.
“Good.”
He left the email open.
The Tax Behind the Story
A rental property can produce several numbers that are easy to confuse: cash flow, taxable income or loss, and the owner’s broader economic return.
Mortgage principal reduces debt but generally is not a current rental deduction. Mortgage interest and ordinary rental expenses may be deductible, while depreciation can reduce taxable rental income without requiring a matching cash payment that year. As a result, a property can show one result in the bank account and a different result on Schedule E.
Rental real estate is also generally treated as a passive activity for federal tax purposes. A rental loss therefore does not automatically offset wages, consulting income, or other nonpassive income. Certain taxpayers who actively participate may be able to use some rental losses against nonpassive income, subject to income and other limitations. Losses that are not currently deductible may generally be carried forward under the passive activity rules.
Those rules matter, but they do not answer the larger investment question. A tax loss does not by itself make a rental property a good investment. Cash flow, debt paydown, future repairs, property value, selling costs, taxes, and the other uses available for the owner’s capital can all matter.
Want the tax rules behind the story?
Rental Property Losses: Why a Tax Loss May Not Reduce Your Other Income
How rental cash flow differs from taxable income, where depreciation fits, when passive activity rules can limit a rental loss, and what happens to a loss that cannot be deducted currently.