Tracking Rent Shortfall

Setup & Support
1

I had a renter that broke the lease and moved out early, didn’t pay the last month they were in the unit, and left me a bunch of repairs and maintenance. The repairs and maintenance are easy to capture and report for taxes, but I’m trying to figure out how to capture the rent shortfall. I initially entered a transaction for negative rent for the months they didn’t pay, but subtracts from the actual rent affecting the rent amount for schedule E. I’m going to assume that’s probably not the way to do this, what would be a better way to capture this so I can include for tax purposes?

2

@bob In this situation, you would just not record the income. You cannot deduct a loss unless you record the income first. We’re going down the rabbit hole of cash basis vs accrual accounting methods. Stessa isn’t the right tool for accrual accounting.

Claim a Bad Debt Deduction:

  • Bad Debt Expense: Since the tenant failed to pay rent that was legally owed to you under the lease agreement, you can treat the unpaid rent as a bad debt expense. For rental property income, if you report your income on a cash basis (which most small landlords do), you can’t deduct bad debt because you never included the unpaid rent as income. However, if you reported the rent as income when it was due and then later didn’t receive it, you can write off the bad debt as an expense.
  • Recording the Expense:
    • Record the full rent amount as income when it was due.
    • Create an expense transaction for the same amount in your accounting system labeled as “Bad Debt” or “Uncollected Rent.” (I don’t believe Stessa can handle this part)

Hope that helps

-Tom

3

Thanks @tlatuga, I do record on cash basis. I did try creating an expense as you mentioned but couldn’t find a way to categorize it that would work, as you mentioned.

What about when the property off market for repairs for a period of time because of this, is there a way to claim that other than reporting days in service for taxes?

I also noticed that I needed to change the days of the lease in Stessa to change the days in service. For instance, the original lease was through Oct, but they only paid rent through June and moved out at the end of July. The lease was set as Oct, so rent roll showed rent due with no income which was nice because I could see what was owed. However, the days in service recorded through Oct which wasn’t the case and I had to update the end of the lease date to make that accurate. Technically that doesn’t seem right?