The Big Move: My husband and I rent out half our duplex, and our ‘dead-beat’ tenant owes us $22,500 in back rent. How can we recoup our losses?

United States

Dear MarketWatch,

My husband and I invested in a duplex 23 years ago and have rented out half of it to help pay the mortgage.

After COVID-19 hit, our renter has not paid us a dime since September 2020. It has only been recently that we could evict her because the freeze of evictions was just lifted. We are owed over $ 22,500 because the government refused to let us evict her for non-payment.

Is there a way we can recoup some of the money owed to us? A federal fund for people who were forced to house dead beats like her or maybe a tax write off?

My husband and I are both over 65 and relied on the rental money for our retirement. Because of the loss of income we now have no savings to fall back on.


Livid Landlady

‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.

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Dear Landlady,

The past couple of year have been tough for many landlords — especially the mom-and-pop landlords who only own one or two rental properties. As opposed to larger corporations that may have access to other sources of funding or revenue streams to handle the tough times, small-scale landlords like yourself often were forced to drain their savings to make ends meet. In many cases, rental payments do just about cover the cost of the mortgage, with little profit to be made after.

So when landlords like you couldn’t evict tenants who weren’t paying rent, the financial blow was often massive. A 2021 survey from the National Rental Home Council found that nearly one in four investors who own a single-family rental home were planning to sell one or more of their properties as a result of the eviction moratoria that were in place across the country.

I’ve received letters like yours from other landlords who are quick to vilify their tenants who weren’t paying rent. Obviously, I don’t know your renter’s financial situation. But let’s keep in mind that even with today’s tight job market, the economy has yet to recover more than 1 million jobs that were lost due to the COVID-19 crisis.

Even when workers were able to find work again, it doesn’t mean they financially recovered immediately. Given that many Americans have little in the way of emergency savings, many families were plunged into debt when they lost work because of COVID. Even those who kept their jobs may have relented and taken pay cuts. The pandemic thrust many people into deep financial holes, and it will take a long time for some folks to get out of them.

As for what you can do, you should first check to see if emergency rental assistance funds are still available in your area. Between 2020 and 2021, Congress approved over $ 46 billion in emergency rental assistance. That money was distributed by the Treasury Department to states, U.S. territories, local governments and Indian tribes. The recipients of those funds were given discretion to set up programs for renters and landlords to apply, though the federal government established best practices. As a result, your eligibility and the steps you will need to take will be determined by your local emergency rental assistance program’s guidelines. Indeed, in many parts of the country landlords are the ones who have to submit the application.

Unfortunately, studies have shown that the money has been slow to roll out to applicants. Many of the assistance programs saw a flood of applications immediately and were overwhelmed — even shutting off applications in some cases. According to data released by the Treasury Department, only around $ 20.6 billion of the money set aside for rental assistance has been spent as of the end of 2021.

Nearly 25% of investors who own a single-family rental home were thinking of selling their properties due to the pandemic and the previous eviction moratorium.

You should aim to apply to your local assistance program as soon as possible. Be prepared to provide any required documentation and proof of the lost rent. Depending on the program, you may need your tenant to participate as well.

Whether you can deduct your rental losses from your taxes depends on the accounting approach you take. If you use the cash method of reporting your rental income, you only recognize the income when you’ve actually received it. Whereas, with the accrual method, income is recognized when you earn it regardless of when the money is actually received.

“If you’re on the cash method and tenants miss rental payments this year, you’re not subject to tax until they actually make the missed payments,” Thompson Greenspon, an accounting firm based in Northern Virginia, noted in a blog post.

With the accrual method, because you recognize income that’s earned even if it’s not received, you would owe tax on the rent you weren’t paid. Therefore, you could deduct the losses via a business bad debt deduction. But you will have to provide documentation to back of the claim, Thompson Greenspon noted, including that you have “taken all reasonable steps to collect the unpaid rent.”

Keep in mind that you can take advantage of other deductions vis-à-vis your rental property at any point, such as mortgage interest, insurance, property taxes, maintenance costs, and even the legal fees if you did eventually file for an eviction.

Finally, given that you’ve drained your savings over the past couple of years, now would be a good time to reconsider your future plans. Even if you’re able to get a new tenant, it may be a while before you recoup these losses. Being a landlord, as you’ve learned, isn’t always easy.

You might also want to talk to a real-estate agent about how much your duplex could sell for if you were to list it. Given the high real-estate values across the country right now, it may be advantageous to sell now and downsize to a smaller property. You may be able to pocket some of the money earned from the sale, even after buying a new home, and put those funds toward your retirement without the stress of dealing with tenants.

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