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lilly54
Level 3

I had a tenant who moved out in 2021 year security deposit money in addition to that covered by his deposit, which I withheld. Can I declare those as a loss?

If I can, where in TurboTax Home
5 Replies
MaryK1101
Expert Alumni

I had a tenant who moved out in 2021 year security deposit money in addition to that covered by his deposit, which I withheld. Can I declare those as a loss?

If you had a tenant who did not pay rent, you cannot declare a loss for the unpaid rent unless and until you take formal legal action to get a judgment against her for the payment and you have taken adequate steps to attempt collection and it becomes bad debt.  The security deposit that you kept will be reported as income.  

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ee-ea
Level 15

I had a tenant who moved out in 2021 year security deposit money in addition to that covered by his deposit, which I withheld. Can I declare those as a loss?

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. For a bad debt, you must show that at the time of the transaction you intended to make a loan and not a gift. If you lend money to a relative or friend with the understanding the relative or friend may not repay it, you must consider it as a gift and not as a loan, and you may not deduct it as a bad debt.

In other words-unpaid rent is unpaid rent no matter what you call it.

  

From  https://www.irs.gov/taxtopics/tc453#:~:text=Generally%2C%20to%20deduct%20a%20bad,%2C%20dividends%2C%....

lilly54
Level 3

I had a tenant who moved out in 2021 year security deposit money in addition to that covered by his deposit, which I withheld. Can I declare those as a loss?

This is a rental business not personal income. The tax section you are referencing is for personal debts and loans. I didn't loan money. I incurred an unpaid expense when the tenant incurred costs greater than the deposit.

lilly54
Level 3

I had a tenant who moved out in 2021 year security deposit money in addition to that covered by his deposit, which I withheld. Can I declare those as a loss?

Just to be clear, this is not rent either (which I understand is not deductible if not paid). This is damages in excess of the security deposit.

PattiF
Expert Alumni

I had a tenant who moved out in 2021 year security deposit money in addition to that covered by his deposit, which I withheld. Can I declare those as a loss?

If your tenant damaged the living quarters and the repairs needed cost more than the security deposit, you can deduct the expenses that you paid that were greater than the security deposit on Schedule E.

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