Bought our first home, seller squatted for 7 months post-close—can I deduct unearned rent or eviction costs on taxes?

[meowmeow666]

We bought our first home in Nov 2023 and let the seller stay post-close for 2 months rent-free while she looked for a new place (yes, big mistake). The leaseback agreement stated $300/day rent after the free period, but she ended up staying until June 2024 without paying a dime. We incurred significant legal and eviction costs, and we had to rent elsewhere the entire time while covering mortgage, taxes, etc. Only $5K was held in escrow (thanks, realtor).

Is there any way to deduct the unearned rent or eviction/legal costs on taxes? Could I treat this as a rental business and itemize on Schedule C instead of Schedule E? I heard depreciation might not even apply since the "rental" period was under a year. Any guidance appreciated!

[Vanessa A]

No.  These are personal expenses and are not deductible.  You cannot treat it as a rental, as you were not renting the property.  

Even if you had a rental property you cannot deduct unearned income.  You can only deduct actual income.