I believe it tends to give me a slightly lower return, because the sponsor is going to be more careful, and if there is a severe downturn will prevent me from taking catastrophic losses.

If it is block construction the engineers will make you beef up the slab and add piles to support the new weight of the second floor.

Hi Jeff,Sorry for your loss. 

The conversation, as well as this decision, left me wondering how many insureds are denied policy coverage and cannot afford to bring a suit against the insurer and are unable to recover their loss.

If you are in this business long enough you will undoubtedly arrive at situations where taking the small loss even if not fair or warranted based on the circumstances is best if it keeps everything moving and avoids more costly delays, liability and inconveniences.In this case, if you withhold the $2K, you still have to find someone to complete the work to your satisfaction.

I wouldn't worry too much about it, if you have a competent CPA or bookkeeper they should be able to review your books and within minutes have a strong grasp on who gets a 1099 (spoiler alert, not every contractor gets one, I'll be annoyed if I get one since I'm structured as an S corporation) and the amounts to report.1099 filings are usually a loss leader for us, so if you're working with a professional make sure you take advantage of them filing everything for you.

After weighting all of that, does it make the most sense to try to keep this tenant in place? 

I am not sure if it was just my market or more on their end but at the end it was a pretty big loss for us, so we cut it. 

If I can afford the financial loss of it not being rented those months (2K mortgage) then maybe it's at least worth trying?

@Brody Veilleux Loss harvesting in real estate allows you to offset capital gains by selling a property at a loss, which can also offset gains from stocks or other investments.