Tenant Did Not Pay and Left - COVID

[Lori Gilbert]

We rented a unit to 2 girls.  They signed one lease.  From day one they each paid their half and acted like they were separate in paying rent. They technically broke the lease when they took on a pet in March, but due to COVID we could not do anything and they knew it.  One of the girls kept paying rent.  The other one stopped 4 months ago claiming she couldn't because of employment issues.  Never responded to emails or texts to produce a payment plan. They asked to break the lease early and we said fine because one of them wasn't paying.  They have vacated the property.  Since the renter did not want to set a payment plan with us I want to know if it's okay to send what's owed to a collection agency.  I know that during covid we could not report unpaid rent or report to a collection agency while renting but now that she's no longer a renter can we.  If not what are our options? The property is based in Washington DC.  

[Filipe Pereira]

@Lori Gilbert 

I am not in your state and do not know the laws for Washington DC in terms of rent collection or reporting debts to agencies, especially in regards to Covid, but if you find out that you can report here is another option for you if you don’t want to go through the collections process (which rarely yields any money in your pocket).

“Forgive" the debt, at which point it becomes income for the tenant. Send her a 1099, and file a copy of the 1099 with state/feds so that the IRS will come to her looking for the income tax on that amount of money. Just understand you can never collect on it if you go this route. You have to be mentally ready to “let it go” if you proceed here.

There is going to be a lot of this in CT / MA / NY as eviction moratoriums finish up and landlords in these states can begin evictions - most realizing they will never get a dime in back rent.

More info:

"According to the IRS, if a debt is canceled, forgiven or discharged, you must include the canceled amount in your gross income and pay taxes on that income unless you qualify for an exclusion or exception. Creditors who forgive $600 or more of debt for you are required to file Form 1099-C with the IRS"

https://www.credit.com/blog/1099-c-in-the-mail-how-to-avoid-taxes-on-cancelled-debt-14927/