Payment to Tenant for Breaching The Lease

[Tina20222]

I have a investment home. I rent by rooms. In 2024, a tenant moved in but he had some behavior issues, so all other tenants requested me to kick him out. I returned the security deposit and the rent he paid, plus $2,000 for him to move out immediately. How do I report this?

[MaryK4]

You can enter as a Miscellaneous Expense.  

You can deduct the ordinary and necessary expenses for managing, conserving and maintaining your rental property. Ordinary expenses are those that are common and generally accepted in the business. Necessary expenses are those that are deemed appropriate, such as interest, taxes, advertising, maintenance, utilities and insurance.

[Tina20222]

Thank you for the answer. I have another question. All the renters moved out in November 2024. I didn't look for new renters because the house needed deep clean. I am cleaning up it now and expect to list this house for rent again in April 2025. How do I report the period (December 2024 - April 2025) that was not rented? Thank you!

[RobertB4444]

For the period that it is not rented and not available for rent the house is just a second home for you.  You can deduct the mortgage interest and property taxes on that second home as itemized deductions if you qualify but all the regular rental expenses are not available.  

If you do any renovations or improvements to the house during the time when it is not rented then the expense for those can be depreciated beginning when the house is once again available for rent.

@Tina20222 

[Tina20222]

I didn't do major renovation, but some painting and repairing that cost a total of $1,000-2,000. For this amount, do I still have to capitalize it? Thank you!

[AmyC]

No, this may be largely maintenance which is a write -off (deductible when rented again) and even with the repairs, it isn't a large amount. Your numbers fall inside the de minimis ruling. See Tangible property regulations - Frequently asked questions.