Tax Question: Better to pay tenant or give rent credit?

Question

My tenant made a minor repair I approved of which was needed. Is it better from a tax perspective to pay him or give rent credit for work done? He has done the job already and did it well. I'm trying to decide if I give him rent credit for this coming month or just pay him with a check. I want to know what if any tax implication there is for either choice. Does less income end up being the same as business expense in the end?

Thank you in advance

Natalie Kolodij · Answer

Tax wise 6 of 1 half dozen of the other.

Rent is either lowered by that amount= less taxable income

or

Expense is increased by that amount= less taxable income

Chad Hale · Answer

Best to cut a check for the work or at least have your accounting show full rents paid. You may want to be able to show “total income” at some point.

Jean-Thierry Aleman · Answer

Thank you @Jaysen Medhurst and @Natalie Kolodij . I thank you both for your responses. Natalie, that was what I thought but I appreciate your saying it and the fact that your an accountant..... even better.

And in case anyone cares to know how this story ends..... I'll be giving him a check for work done.

Jaysen Medhurst · Answer

Absolutely pay him and get a receipt, @Jean-Thierry Aleman. Don't give a rent credit. It doesn't so much matter from a tax perspective, but you run the risk of the tenant making a future claim that you permanently lowered his rent.

Percy Matsunaga · Answer

@Natalie Kolodij

Hypothetically speaking, If I have properties in 3 different states and live in 1 of those states, would that be a difficult situation to file taxes for me in your company?

Jaysen Medhurst · Answer

The RE lawyers I've spoken to have always said to never give a rent discount because there is a risk that it could be seen as an adjustment to the lease, @Anthony Wick. I agree it makes no sense, but better safe than sorry.

Natalie Kolodij · Answer

We work with clients all overt the country - fully virtual

Jean-Thierry Aleman · Answer

@Anthony Wick I agree with your statement. I wasn't worried about him trying to make any claims, especially with him having just renewed for another year with a signed contract 2 months ago. My main concern was leaving $ on the table due to tax implication which I thought (but wasn't sure) would be the same. Thankfully Natalie confirmed that.

Anthony Wick · Answer

@Jaysen Medhurst

What? That makes no sense. You have the lease to show rent amount, and zero documentation to show rent has been permanently reduced. Tenant can claim anything they want. Doesn’t make it true.

Percy Matsunaga · Answer

@Natalie Kolodij

I seen your tag and wanted to ask if you only practice the accountant in NC? Or are there other states that You are able to help file taxes?

Tax Question: Better to pay tenant or give rent credit?

Tax Question: Better to pay tenant or give rent credit?

Most Popular Reply

10 Replies