Tax Implications of a Tenant Requested Improvement

[Ted Klein]

Awhile back I posted about a tenant I have that has requested to make a to my property. Long story but to make it short, tenant has agreed to pay approximately $8400 to improve the shower stall. The bid for the improvement came in higher than expected, so I offered to carry a balance  if they agreed to pay a substantial down payment and to make monthly payments on the balance.

As it stands, the tenant will make a down payment of $4000 and I will pay the remainder with the tenant agreeing to pay an additional $500 per month until paid in full.

My question is how will this affect my taxes for this year? Technically I am loaning half of the money and being paid that amount back interest free. What startegies should I use to minimize tax implications and to get the most benefit.

I might add, the tenant is 84 years old and is retired, has been a great tenant and pays on time. Additionally, I have had a promissory note drafted with my attorney to ensure that I have some recourse if the tenant passes or fails to pay as agreed.

I have already consulted with my tax preparer, but wanted to ask the BP community to ensure that we get this right.

[Thomas S.]

The only positive tax implication I see is you being able to claim the interest cost on the portion you put up till she pays it back assuming you had to borrow the money yourself.

No other benefit. Downside is you may have to claim tenants money as income and instillation cost as expenses for tax deduction. In the end, if you claim any of this,  you will be paying something in taxes on the tenants money.

I know how I would handle th eincome and expense but I tend to march to a different drummer.