EVICTION COSTS

[Max W]

Client purchased a 2 family home in San Francisco for rental purposes which already had a tenant.    SF has some the of toughest rent control laws in the country. 

Because, the tenant had a "sweet heart" deal on the rent from the prior owner, the client wanted to renovate the house, raise the rent and move into the renter occupied portion. In SF, any of these reasons are cause for the evicted tenant to receive "Relocation Costs".

The eviction cost the client over $10K in legal fees and another $20K to the tenant for relocation costs.  In addition to this the client gave up any claim against the tenant for 7 months unpaid rent  ($14,000).

Clearly, the $10K legal fees are deductible as an expenses and it would seem that the payment to the tenant would also be deductible as part of the eviction cost, particularly since it is mandated by local law.    However, I would would like to be sure that there is not something in our "clear, concise and unambiguous " tax code that says otherwise.

TIA

 

[easytax]

Just an article from MSN.com on SF rent incident -- much different from yours:  http://www.msn.com/en-us/money/realestate/san-francisco-tenants-fight-back-after-landlord-raises-rent-by-dollar4800-a-month/ar-AAsx454?li=BBnbfcL

If you do not want to click, see search article titled: "San Francisco tenants fight back after landlord raises rent by $4,800 a month".

Interesting different take from your clients circumstances.

 

[ILLMAS]

1099 to the tenant at a minimum for free rent and relocation, TP would have to report the free rent as income also, I only see the legal fees and relocation cost a deductible, and he gets no benefit on the free rent, net effect is zero.

[Max W]

Yes, ILLMAS. I was certainly going to suggest a 1099 for the cash payment, but for the free rent - I'm not so sure, although your suggestion is food for thought..

[ILLMAS]

1 hour ago, Max W said:

Yes, ILLMAS. I was certainly going to suggest a 1099 for the cash payment, but for the free rent - I'm not so sure, although your suggestion is food for thought..

Or a 1099-C is another option for the unpaid rent.

[Roberts]

If they are a cash basis landlord, why would one issue a 1099 for unpaid rent?

 

[ILLMAS]

Maybe I am comparing apples to oranges, but when someone wins a radio contest, let's say a vacation, mostly likely the individual will receive a 1099 "other income" with the FMV of the vacation package, no exchange of money but received a benefit from it.  I am seeing the tenant received a FMV rent valued at X amount for free?

[Max W]

16 minutes ago, ILLMAS said:

Maybe I am comparing apples to oranges, but when someone wins a radio contest, let's say a vacation, mostly likely the individual will receive a 1099 "other income" with the FMV of the vacation package, no exchange of money but received a benefit from it.  I am seeing the tenant received a FMV rent valued at X amount for free?

I certainly agree with the reasoning here, but is there anything in the tax code that would allow this?

[ILLMAS]

Unfortunately, I have not seen a specific IRS code on it, however it's a common practice with p'd off landlords around the country and the only IRS backlash I have read about is when using 1099-C (designated for banks, lenders etc....) for unpaid rent, so forget issuing a 1099-C.