If you were legitimately renting to them, yes. This is why passive income is subject to at-risk rules. You make an investment with the property you own expecting to get income in return. Occasionally, some are delinquent (and perhaps local law severely limits eviction). If this was your situation, you are justified in claiming the expenses as a rental loss. Keep in mind, however, three points:
-
Your losses may be limited. If you are not considered a Real Estate Professional (usually someone dedicated to earning rental income), your losses are limited to at least 25,000 (and you may be even further limited, depending on your income)
-
It is more likely for the IRS to audit your claim. Have excellent records of why you didn't receive income (such as efforts to evict, for example)
-
You may receive income on this in the future. If you are going through the courts and win a judgment, this is the equivalent of rental income. You will pay taxes on that in the future, and, since you are claiming the expenses now, won't be able to claim it then. (In reality, however, this would strengthen your argument justifying the loss).
For additional information, please see this IRS website: Limits on Rental Losses - IRS Tax Map - IRS.gov
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
