What is Principal Repayment?
Quick definition
Principal repayment is the loan balance reduction component of repayments and is generally not tax-deductible.
InvestingGeneral
Overview
In principal-and-interest loans, each repayment includes interest plus principal. Principal reduces debt but is not usually an immediate tax deduction for rental-property income.
Separating principal from interest helps avoid confusing cash outflow with tax-deductible expense.
Why it matters
- Explains why pre-tax cash flow can be weaker than taxable position suggests.
- Improves interpretation of debt paydown versus deductible cost.