Tax Implications of a Tenant Requested Improvement

[Ted Klein]

Awhile back I posted about a tenant I have that has requested to make a to my property. Long story but to make it short, tenant has agreed to pay approximately $8400 to improve the shower stall. The bid for the improvement came in higher than expected, so I offered to carry a balance  if they agreed to pay a substantial down payment and to make monthly payments on the balance.

As it stands, the tenant will make a down payment of $4000 and I will pay the remainder with the tenant agreeing to pay an additional $500 per month until paid in full.

My question is how will this affect my taxes for this year? Technically I am loaning half of the money and being paid that amount back interest free. What startegies should I use to minimize tax implications and to get the most benefit.

I might add, the tenant is 84 years old and is retired, has been a great tenant and pays on time. Additionally, I have had a promissory note drafted with my attorney to ensure that I have some recourse if the tenant passes or fails to pay as agreed.

I have already consulted with my tax preparer, but wanted to ask the BP community to ensure that we get this right.