All Forum Posts by: Kyla B.

We are finishing renovation on a 2/2 that we plan to MTR. This is our first foray into MTR so I expect we'll learn a lot. I'm curious this group's advice on setting up a unit.  One room will easily fit a king bed which we plan to do. The other room is smaller and set up with a desk. We could start with a queen bed or a day bed/trundle which would allow more usable space for other use.  Should we start with a queen or try the day bed? 

We are in the Bay Area near hospital systems, university and easy commute into SF.

1. Are Tenant Buyout Agreement payments eligible to be claimed as rental property expenses for tax purposes?

2. Does anyone in the community have practical advice/insight on this?

Background:

My partner and I are negotiating a Tenant Buyout Agreement with our rent-controlled tenant in Berkeley, California.  The apartment is rent controlled with a long-term tenant who pays well below market rate.

In my online research, it does appear that a Tenant Buyout is a valid rental property expense according to the IRS as long as it is 1. "ordinary and necessary" for the production of rental income and 2. for a reasonable amount.

I think the case for both of these should be easy to make.

We are on good terms with the tenant and expect to obtain a Buyout Agreement before the year end. The way we are structuring payment is a lump sum payment after signing rescission period ends (30 days), another lump sum payment at tenant moveout, and then monthly payments over the next 48 months.

It seems this expense would go in the "Other" category of schedule E.

Also since the payout expense will occur in multiple tax years, my understanding is that the expense should be claimed in the year it is incurred.  Is this reasonable?

I will discuss this with our accountant as well, but thought the Bigger Pockets community  would be able to offer valuable expertise.

@Caleb Genry It would be incredibly helpful for you to share this spreadsheet with me.  I was hoping it would be posted somewhere in the forum so I wouldn't have to bother you directly but it does not seem to be.

Thanks for contributing to the Bigger Pockets community in this way.  =)