In general should I reduce next month's rent if I owe a tenant for expenses they incurred or should I write them a check? I am thinking of record keeping and tax implications.
I always write them separate check. It's easier for my booking keeping. Track income and expenses easier. So I will have something to show when you write off the expense.
I agree with JC
Agree with JC. Never reduce the rent. It becomes an oral agreement and may invalidate the authority of the lease if you end up in court.
You never reduce the rent for anything other than a pro-rated month (i.e. if they moved in halfway through a month). Otherwise you always consider those expenses separately. Never mix the two.
For expense tracking, it is easier to write a check or e-pay via your online banking. I try to stay clear from reducing rent unless there is a specific agreement / addendum explaining the reduction.
Be very careful playing with rent numbers. If this is a multifamily the rent is what the property is valued by. Wouldn't want to risk reducing value if you run into problems with the tenant and the reduced rent.
Keep it separate, ask / get receipts from tenant if they paid for something out of pocket.
If you pay them for services rendered you should also keep that separate and not deduct from rent.
You can 1099 them for labor.
I agree with JC. Easier for bookkeeping.
Straight from IRS publication 527:
If your tenant pays any of your expenses, those payments are rental income. Because you must include this amount in income, you can also deduct the expenses if they are deductible rental expenses.
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