Holdover tenants that dont pay rent

[Lejla]

i have a tenant that has not paid rent since may.  how do i write this off? also the expenses of court and lawyers? can i file these in my tax return?

[MaryK4 · Accepted solution]

 If you are a cash basis taxpayer, you do not deduct uncollected rent because you never included it in your income.  If you use an accrual method, you report the income when you earn it. If you are unable to collect the rent, you may be able to deduct it as a business bad debt. 

Any expenses incurred in attempt to collect the rent is deductible.

[Lejla]

• Thank you soooo much for helping me in this matter. Correct, i will not include the uncollected rents in my income. So, i can report the expense of holdover process in my tax return. I was not sure about it. 
• Thank you again

[DawnC]

You can deduct the regular rental expenses (mortgage interest, repairs, utilities, insurance, etc.) as well as legal fees, expenses to collect rent, lease cancellation expenses, and eviction costs.  

Deductible Rental Expenses

[Carl]

I highly doubt you operate your rental property using the accrual method. (But you could, and it would be a bit rare if you did). 

Basically, you do not report unpaid rent anywhere on any tax return. You can not deduct from your taxable income, that which you were never paid and therefore was never taxed on in the first place.

All legal expenses paid in connection with the eviction and/or collection of back rent are claimed on the SCH E in the rental expenses section, sub-section for Legal and Professional Fees. Those costs will be on line 10 of the SCH E.

[Lejla]

Thank you sooo much for your help DawnC

I will do that.  

[Lejla]

Carl, thank you so much for your detailed advice. That's correct, i dont use the accrual method. I operate on actual cash basis. This holdover case is a first for me thats why i needed advice from experts.  

I will print out every answer i received for my question and i will follow the advices. 

I am so glad i asked the question

Have a blessed day

[Carl]

Don't know what state you're in, but I find it unfathomable that you'd allow a tenant to remain in your property for 9 plus months without paying rent. For my properties, using the legal system I'll have a tenant out within 60 days. I know because I've had the unfortunate experience of having to do it twice in the 30 plus years I've been a landlord. It's rather easy, but it's not fun. I do not find any pleasure what-so-ever in having to evict anyone. Especially if they have young kids. However, I depend on that rental income to make the mortgage payment on the property. The bottom line is, the mortgage lender does not give a crap about my tenants inability to pay rent regardless of the reason. They want their payment and if they don't get it they "will" take the property from me. If that were to happen, then they would evict the tenant anyway so they could get the property sold and cut their own losses.

I'm in FL. Years ago I purchased a book on Amazon and I purchase the updated version every year. It's called Landlord Rights & Duties by Mark Warda. There's an edition for each of the 50 states written by lawyer's that are familiar with the laws of that state, since laws differ from state to state. Just taking a quick peek at amazon, the book for FL and TX are the first ones to pop up in a search. I highly encourage you to purchase the book for your state and that you actually read it. It was a real eye-opener for me.

The book tells me step-by-step what I need to do for "any" situation. It also includes all the forms required for practically any court filing if that becomes necessary.  The book also has guidance on how to write the rental contract so that should legal action on your part be necessary, the contract ensures your actions are supported on that front.

In FL, a contract can be considered breached when the rent is 15 days past due. But still, there's certain legal procedures that must be followed to the letter by the landlord. The book spells out these procedures.  For example, when the rent is 5 days past due, on day 6 I'm required to provide the tenant in writing, a 7-day notice to pay rent. If they don't pay by day 7, then on day 8 they get a 3-day notice of pending legal action to evict and/or collect rent. If not paid by day 3, then on day 4 I take the paperwork to the courthouse and file it. It's a $120 filing fee that I pay.

Once that paperwork is filed with the courthouse, that's it. Even if the tenant shows up with the rent after that, I flat out can not accept it. If I do, then I've wasted my $120 filing fee and the day counts reset to zero. This is so even if I accept partial rent payment.

If the tenant wishes to settle up before the scheduled hearing, they have to go to the courthouse and settle up with the clerk of court. There will still be a hearing, as settling with the court doesn't change that. But chances are, if they couldn't pay "you" the rent, they can't pay anyone the rent. I've never had a tenant settle with the court before the hearing date.

With my first hearing, the tenant vacated the property before the hearing date. At the hearing, the judge had them sacrifice their deposit, pay a pro-rated rent up to the date the vacated, and pay my $120 filing fee. As far as I'm concerned, I came out with a fair settlement on that.

With my 2nd tenant years later, the judge gave them 7 days to get out, or he'd have the sheriff remove them and issue them trespass warrants. They were out in 6 days.

For both scenarios, I was only 2 months without rental income from the affected property. That's how quick I was able to get them out legally, and get a paying tenant moved in.

The best part about this whole process, is that I did not need to pay a lawyer for this. Remember, an eviction is a small claims court thing. So it's not like anyone appears in a formal courtroom with jurors like you see on TV. Not like that at all. For both of my cases, we met at the judges' office downtown, miles from any courthouse. The only ones present was myself, the tenant, the judge and a court recorder (stenographer) to make the legal recording of the hearing for court records. It was a very informal type of hearing where each side stated their case, then the judge made the final ruling. We were in and out in less than 30 minutes.

Quick, easy, yet still unpleasant to have to take such actions against someone I had no hard feelings against.

Get the book. Read the book. Head the book. It will save you tons of time and money in the long run.

[Lejla · Accepted solution]

Ah Carl, i wish i was in FL. I am in NYC, the WORST city for landlords. I rely on that rent also to pay mortgage and all the other bills. NYC has the worst laws and regulations when it comes to landlord -tenant situation. They dont support us at all, they only support them. We are not even allowed to talk to those tenants because they will say we harassed them. When we told them we need the apartment so we will not renew the lease, he literally said to us - i will not pay the rent. Not they only overstay the lease, but they dont even pay the rent. We told them 3 months in advance, because this is the law in NYC. What can i say, its an adventure. And the problem is, we are not sure we will get our money, even though we took them to court.

I have heard about FL and i envy you guys.

Thank you very much for letting me know about the book. I will buy it right away. Have a great evening.

Respectfully

[Carl]

Here in FL, just because the judge may find in the landlord's favor and order the tenant to pay the landlord, having a court order for them to pay and actually collecting what is owed is two totally different beasts. But there's a part of the law here in FL that is not well advertised that I use to my advantage. It's not well advertised, because judges hate it. But when it's bought up, they can't deny it. It's called an "Asset Statement of Fact".

When the landlord informs the judge they would like an Asset Statement of Fact from the tenant, The tenant usually has no idea what that is, and the judge has to explain it to them.

An Asset Statement of Fact is where the tenant has to provide the court and the landlord a list of "everything" "they" "own" along with an appraised FMV of everything from a qualified appraiser. Typically, they have 30 days to provide it to the court and the landlord.

What that does, if the tenant does not pay, the landlord can place a lien on what the tenant owns up to the value of what the court has ordered them to pay. Six months later if not paid, the landlord can then take action for a court ordered auction to sell off the tenant's assets until enough funds have been collected to pay the court ordered debt. If it were to actually come to that, the court can (and usually will) add the cost of the auction and other stuff, to the tenant's liability. So it can, and usually will, get costly for the tenant fast.

Now on my first eviction where the tenant was ordered to pay my legal fees plus the rent I was owed, I did this. After the judge explained it all to the tenant, that's when I said "tell you what.... if you've got your checkbook and you write a check and pay me "right now", I'll drop my motion for the Asset Statement of Facts."

The tenant asked the judge if they could run to their car and get their checkbook, which the judge allowed. They wrote me the check then and there. Afterwards, the judge explained to them that if the check bounced, they'd have bigger problems because knowingly writing a bad check in my state is a criminal offense that doesn't come to him as a county judge; it goes straight to the state attorney's office.

Needless to say, I actually did collect my money and the check did not bounce.

Now, the only reason I knew about that "Asset Statement of Facts" at the time, is because I actually read the book I referenced in an earlier post. Without having read that book, I most likely would have never collected what I was due.

[Lejla]

Carl, you Floridians are lucky in every aspect. That statement doesnt work here in NY. The landlords are very discriminated. We have to give free housing for the lazy ppl. 

[Carl]

One thing I can say about the rental laws in FL, is that from what I see they seem to be fair to both properties. The tenant has certain rights, as well as the landlord. The book I referenced earlier covers the rights of both parties. In fact, I encourage my tenants to buy the book. To the best of my knowledge, I don't think any of them ever have bought it in my 30 plus years as a landlord. But I still do all I can to ensure that all I do as a landlord is legal and binding in respect to both myself as a landlord, and my tenant. Using that book as my guide has made my life as a landlord *so* *must* *easier* and no question that it's been completely stress free too.

I truly believe that one thing that makes the difference for me, is attitude and perspective. Basically, you have two types of rental property owners. Slumlords and Landlords. Here's how I see the difference.

Slumlords make their money off the rental income. If something breaks, the only way to get a slumlord to respond is to withhold the rent. Then when they show up in person to collect the rent, they fix the problem, you pay the rent. If they won't fix the problem, then you the tenant fix the problem with the rent money, and pay the slumlord anything left over, if there is anything left over. If the slumlord tries to evict you, a simple explanation to the judge of what you did and why you did it (along with documentation to support your explanation) and the judge will admonish the slumlord and "may" even order a judgement payment to the tenant.

A landlord does not make their money from the rent. They invest any money left over from the rent after paying things like the mortgage, back into the property.  A landlord makes there money in the long term from the "investment". The landlord responds to tenant concerns in a timely manner and *FIXES* the problem using he money left over from the rent. Then down the road when they sell the property, *that* is where they make their money with the increase in the property value *because* they fixed things and kept it up. That's me. That's how I do things.

[Lejla]

You are soo correct. Yes, we are landlords too. We use the leftover money to fix everything and to well maintain the house. that's the best thing to do for the property and for the tenant . I surely can tell that we, my husband and I, are great landlords. During covid we never increased the rent. This holdover tenant -family never got an increase. The problem here in NYC is that some bad ppl know the law, and take advantage of it and of us law-abiding citizens. 

Thank you again for your time and valuable information. Have a great day.