I will discuss the tax implications of tenant rent non-payment. You will learn what you can deduct and what you can’t.
Depreciation, Maintenance and collection expenses
Depreciation of the property is not affected by a tenant. You claim depreciation regardless whether the property is rented or not. Expenses incurred to maintain the property are also unaffected by the tenant payments. Deductions for taxes, insurance and interest are unchanged. Expenses incurred to collect rent are costs of doing business. Mailing late notices, trips to the property or bank are all normal expenses to collect the rent.
Loss of Income is not deductible
You may not deduce the loss of profit for non-payment. The profit would be in the income after expenses. You never received the money as income so it was never yours to lose. The money will not show up on the tax return.
Good Samaritan Pitfalls
No good deed goes unpunished. If you lower the rent below fair market, you may lose your profit motive for owning the property. If the tenant is a relative or close friend, reduction of rent may be seen by the IRS as converting the property to personal use. If that occurs, then you lose your deductions for depreciation, maintenance, insurance and other associated business deductions.
You must maintain a business posture throughout the rent recovery process. Do not let tenant rent nonpayment cause you to lose your tax deductions.
See also Late Rent Payment - three easy steps to resolution and
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