Since the federal government has extended the moratorium on evictions to October 3, 2021, many landlords have been confronted with the challenge of having occupied property for which the rent has not been paid. In the face of the eviction moratorium, many landlords are struggling and may wonder whether they can write off all the uncollected rent.
This may come as a surprise to many, but the short and quick answer is no. In general, if the landlord is a cash-basis (also known as cash-method) taxpayer, the landlord cannot deduct uncollected rent as an expense on their income taxes.
What is a cash-basis taxpayer?
A cash-basis taxpayer reports income when it's received (whether actually or constructively) and expenses when they're paid. Typically, most landlords fall into this category, reporting rents when they receive them, and thus cannot take a deduction for rent that has not been paid to them.
While landlords cannot take a deduction for all the rent they were unable to collect during the COVID-19 pandemic, there are still plenty of deductions that they can claim.
What deductions can landlords claim?
In general, landlords can deduct the costs of mortgage interest, property tax, operating expenses, depreciation, repairs -- and even expenses paid by the tenant. Landlords may also deduct any ordinary and necessary expense for managing, conserving, and maintaining their rental properties. Additionally, some landlords may be eligible to claim the 20% qualified business income deduction (QBI).
So, while uncollected rent is completely off the table, there are still plenty of deductions that landlords can claim on their tax returns.
The Millionacres bottom line
Many landlords are feeling the economic sting of the pandemic -- and they are owed months and months of uncollected rent and are unable to evict. In the midst of these challenging times, many landlords may be surprised to learn that they cannot claim a deduction for uncollected rent.
While this is the case, do not be dismayed, there are still plenty of deductions landlords can claim. To learn more about the available deductions, contact a tax professional as soon as possible to prepare for the 2021 tax season.