Rental Operating Income Loss (COVID-19)

[Kris40]

Hello here are the basics, my rental property overall carries annual rental of 60,000. Due to COVID 19, my tenant was unable to have their bar open and for 2020 has basically 35,000 in unpaid rent. My tax person said we can only claim rental income received however since I have not yet recovered this income (and there is no telling when I may), this constitutes an actual loss. For My tax person I have filled out the Schedule E for Rental Income and Expense sheet however not sure if there is another form or method to use in which I can "claim" the actual losses? 

[MaryK4]

Generally, to deduct a bad debt, you must have previously included the amount in your income or loaned out your cash. If you're a cash method taxpayer (most individuals are), you generally can't take a bad debt deduction for unpaid salaries, wages, rents, fees, interests, dividends, and similar items.

See Business Bad Debts.

[Kris40]

Thank you MaryK I really appreciate your response. I have a follow-up to your answer as I read the IRS document. I am sole proprietor landlord, have claimed income for rent from prior year tax period, and generally use the cash method. The article does state there are 2 avenues for business bad debt claims using charge-off method and non-accrual experience method. Even though I am sole proprietor and this is personal property that is rented out, does this still allow me to claim later using 1040-X. Since I am accruing losses of the duration of rental (when considering all costs considering depreciation), would it be best to still claim this business bad debt later? The article still seems a bit ambiguous.

[DianeW777]

No. As stated by @MaryK4 a loss or bad debt is only sustained for tax purposes if the income has been reported and included in taxable income on a tax return.  In your case you did not take in the income, and therefore had not income reported on your tax return.  There is no loss or bad debt for tax purposes.

Cash method. This method is determined the first time you file a tax return and is only changed by request of accounting method.

If you use the cash method of accounting, you generally report income when you receive payment. You can’t claim a bad debt deduction for amounts owed to you because you never included those amounts in income. For example, a cash basis architect can’t claim a bad debt deduction if a client fails to pay the bill because the architect's fee was never included in income.

• Publication 535 - This covers both accounting method changes and bad debts.

[Kris40]

Thank you @DianeW777 and @MaryK4 appreciate both of your helpful comments and insight.

[Carl]

not sure if there is another form or method to use in which I can "claim" the actual losses?

Just to clarify here. You don't have an "actual" loss. You can not "lose" that which you never received and paid taxes on in the first place. Period. You simply report the income actually received. That's it. With rental property, if your rental expenses exceed your income (they will) once your rental expenses get your taxable rental income to zero, that's it.

Of the excess loss you may (or may not) qualify to deduct a maximum of $25K of those excess rental losses from other ordinary income. Then, any remaining excess loss is simply carried forward to the next year.