Your math does not add up. If your rental profits are $700/month (total for all 4 units), then your annual rental profits should be $8,400. For a property purchased for a total of $215,000, the depreciation should only be approximately $7800/year (straight line, 27.5 year recovery period), meaning that you should have annual taxable rental income of roughly $600.
Moreover, the amount of depreciation you can take (in total) does not increase with a change in the value of the asset; it's based on your "cost basis" in the asset. It only goes up if your costs in the asset increase, such as for property taxes paid, improvements, etc.
Finally, and this is a big one--the value of the land is excluded from the depreciation calculation--only the building and improvements to the property can be depreciated. So $215,000 is an upper bound on the recoverable amount--the properly depreciable amount is less than that, meaning that your annual depreciation should actually be less than $7800/year and that you should actually have more than $600/year in net rental income.
You need to talk to an accountant soon, because if you get audited you almost certainly will be paying back taxes and penalties.
Sorry, I was rounding conservatively, and my tax returns were prepared by a conservative, professional firm that I hold in high regards, so I am not concerned there, but thanks.
To be more accurate, we do get a bit more, but we withhold for repairs, replacement costs, wear and tear, new appliances, etc. So our income is higher, but I have trained myself not to count it, as the odds tell me I am going to have to pay for repairs. The $700 is what we get to hold onto most often, unless we are saving towards big repairs like new roof, outside paint, etc. And (crucially) I left out that we had enough first year expenses to legitimately lower that perceived income, as well as the interest that we get to deduct (interest being far higher at first in a mortgage payment). Next tax year will have different numbers, since we will have had different expenses and different occupancy (unfortunately they do not stay 100% occupied).
I am just trying to get out round numbers that show that it can work.
Most people have this concept that their house is their biggest asset, when a residence is really a liability for the person who lives in it.
I should not have taken the shortcuts in my math, but regardless, we do well. We have used the profits to invest in more education, and have recently purchased another unit in Florida that will start cash flowing in about two more months. Well, actually it cash flows now, but we had to pay for some new appliances, so in my head, we are negative for two more months, then we start paying off ourselves for the down payment. Again, I am more conservative.
So it is a slow path to wealth, but a valid path, nonetheless.
And I should have put this in the first comment I made:
This is not legal advice, nor is it financial advice. Please seek professional guidance for specific situations. This only serves as an example of one specific deal I am involved in. And even I get the numbers slightly wrong sometimes - H/T to gamblor956 for reminding me to state this.
Moreover, the amount of depreciation you can take (in total) does not increase with a change in the value of the asset; it's based on your "cost basis" in the asset. It only goes up if your costs in the asset increase, such as for property taxes paid, improvements, etc.
Finally, and this is a big one--the value of the land is excluded from the depreciation calculation--only the building and improvements to the property can be depreciated. So $215,000 is an upper bound on the recoverable amount--the properly depreciable amount is less than that, meaning that your annual depreciation should actually be less than $7800/year and that you should actually have more than $600/year in net rental income.
You need to talk to an accountant soon, because if you get audited you almost certainly will be paying back taxes and penalties.