You have a rental loss if your rental expenses are more than your gross rental income. If you incur the expenses to earn income, you can deduct your rental loss against your other sources of income.
If you are renting your property to someone you know for a lower rate than you would to someone you did not know, you might not be able to claim any resulting rental loss. For more information, go to Renting below fair market value.
You can have losses from uncollectible debts or a portion of an uncollectible debt. You can deduct this amount from your gross rental income.
To be eligible, the debt must:
- be owing to you at the end of the tax year
- have become uncollectible during the tax year
- have been included or deemed to have been included in your income for the year or a previous tax year
Proof is required to determine an uncollectible debt. This could be a notice to creditors from the trustee in bankruptcy, correspondence from the tenant, or some other assurance that the tenant was pursued without success of receiving a payment from them. Only debts that are certain of being uncollectible are to be considered bad debts.
You may have a case where you do not receive payment for rent, which is referred to as a bad debt. If, during the year, you receive any payment that you wrote off in a previous year as bad debt, you have to include the amount in your income for the current year.
If you are reporting income on a cash basis, there should be no receivables and no claim for uncollectible rents.
If you are not dealing at arm's length with the tenant, the factors used to establish the uncollectible amount would need to be verified.
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