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In the past, I have rented out an apartment within my personal dwelling. I declare the rent received as income and deduct those expenses required to operate the apartment (prorated as appropriate.) During 2006, my tenant continued to live there but failed to pay me any rent.

Can I continue to declare expenses as before even though there was no income?

The tenant continues there in 2007 with hopes of getting employment and catching up.

Thanks!
Monica
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Is there something to this story that you're not mentioning? Like perhaps the tenant is a relative of some kind? Not many landlords would let a tenant stay in their property without paying the rent due.

The answer to that will have an impact on the answer to your question. So I'll refrain from answering for the moment.

--Peter
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The tenant is a relative, a brother. I have been audited by the IRS in the past concerning this deduction and everything was satisfactory to them.

Monica
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The tenant is a relative, a brother.

I thought so.

I have been audited by the IRS in the past concerning this deduction and everything was satisfactory to them.

I'm again going to guess that this was in a year when he was paying a fair market rent. In that situation, your deductions are fine.

But now we've got a year when he's not paying rent. That changes things. And it makes them a bit difficult.

If he never pays the rent, you would not be able to deduct your expenses (except insofar as they are allowable as personal deductions - mortgage interest and property taxes). If he does pay the back rent, I'd guess that your deductions would be OK.

The problem is that you need to deal with your 2006 taxes while the ultimate fate of the back rent is not yet known. If you're feeling conservative, I'd skip the deductions after he quit paying the rent. A more aggressive approach would be to claim the deductions now. Then if he doesn't pay the rent in 2007, skip them in that year.

I don't really have a good answer for you on this one. Just some things to think about.

--Peter
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Do you have a lease?

MZ4
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Also, I would lean more towards NOT deducting any rental expenses as you are not really renting it anymore. A properly run rental would not allow this to happen and initiate eviction procedures so as to make the property available for other income. By allowing this situation to happen for an extended period of time you are not really running it as a business anymore.

If I was the IRS auditor I would disallow all deductions.

Do the right thing. Letting him stay is fine, but, by not generating income, even partial payments would be good along with a new lease maybe, you are not really operating it in a business like manner.

MZ4
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Thanks for the responses. We won't take any deductions this year.

Monica
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