Can I write off if I have a rental and I’ve got tenants in there and they’re deferring rent due to COVID legislation?

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Q: Can I write off if I have a rental and I’ve got tenants in there and they’re deferring rent due to COVID legislation or not paid rent, or I’ve got an extended vacancy, because let’s say I have a property in San Francisco and they’re running like five months vacancies right now. Can I write off those losses? And if so, like at what number would you move and what rent would you use?

A:[Richard] Okay, and those are good questions. And here it’s kind of, I guess, the terminology. Okay, because tax, all it is, is if I get gross rents, then if I don’t have any expenses, let’s say I get $5,000 in rent for the month. Then I’m not liable for tax on $5,000. If I have expenses, let’s say I have $4,000 in expenses, so then I’d only have $1,000 net income, and that’s what I would have tax on. So now with the COVID deferrals first example, let’s say you have renters and they have not been paying their rent, so that just means you don’t have any gross rents to report, you’re gonna still report the expenses, but there’s no write-off, there’s no credit or write off per se to say, hey, I’ve lost $10,000 in lost rents, because you’re not reporting rental income to, so, so in other words, if I’m not collecting rents, then I’m saying I don’t have any income to report. So the IRS can’t tax me. So the IRS is not gonna, now you can’t say, well, I’ve lost $5,000 worth of rents, so I’m gonna also take a $5,000 expense. So if I have zero rent on this side of the ledger, I can’t say that IRS, I’m gonna also take a $5,000 expense because I have zero rents, right? Because IRS is saying, “Well you’re not reporting any income, so we’re not gonna let you take,” you know, you can’t also say I’m taking $5,000 loss. 

– [Darcy] Gardner or well if you’re paying, as of yet no one defers COVID legislation, not even that 25% is due. So if they’ve got gardener expenses, HOA it’s, whatever expenses they have associated with that property, that all becomes a loss. If they have other income, most of our clients, you know, have significant other income and they have zero rental income. Are they able to take that loss against their other income? – [Richard] That’s actually, that’s actually a topic I was gonna get into that it depends on the landlord’s personal tax situation. So basically if a person makes up $150,000 they cannot take, even if they have loss on their investment properties, they cannot use that against any other ordinary income. So they can’t, if they’re working a job or they have stocks and bonds or investments, they can’t use the laws that they have on their property against that, if they make over 150,000. But if they have other properties that are revenue streaming, so let’s say they have property A that has a loss of 10,000, they have property B that has a gain of 10,000, then that offsets. So it’s called passive activity loss. So basically and refer to your accountant if you’re not sure if you have passive activity losses, they’ll let you know. But your rental losses can only be used against other rental income or against a capital gain on the sale of your property. Or if you have, if you’re invested in other passive activities, what’s a passive activity? If you’re a partner in a, let’s say you’re a partner in a limited liability company, and you don’t do any of the, you’re not involved in any of the business except for investing in it, that’s what the IRS considers a passive activity. So you’d be able to use your losses again from your rental income against that, but basically, generally speaking your losses and your rental income stay within other rental income properties or other passive activities. –