Missing rent

[jimenright]

I have a client whose property manager has not accounted for a substantial portion of the rent money. He has been fired as property manager. He apperently did a good job in the past but has since become elderly and has not kept decent records.

My client has not been a schedule A filer in recent years, thus would lose by taking a Sched A deduction for the missing rent money. Can the missing rent be shown as an expense on the sched E?

Do any of you have a good idea of how to handle this from a tax viewpoint? An attorney is involved but prospects for recovering the missing funds are minimal because the former manager is broke.

[Corduroy Frog]

No Income

The most direct and mathematically appealing handling of this problem is to simply report the rent collected and the expenses incurred. That way there is no deduction, but the effect has fallen out via reduced revenue.

Problem is, this treatment may not be allowed if the situation qualifies as a casualty. Would love to hear from others, but given no better answer, I would lean to the treatment above.

[taxxcpa]

Missing rent

If you report your income on the cash basis, you cannnot deduct income you never received as an expense.

If you charge $ 1000 per month and only collect ten months it would make sense to deduct the missing $ 2000 if you also included it in income: ($ 12,000 - $ 2000 vs $ 10,000-0).

If you report your income on the accrual basis and report the whole $ 12000 then the uncollectable amount in accounts receivable would be deductible as a bad debt.

[JON]

I think the

question is - if the property manager has always collected the rent does the owner not have rental income automatically if the the property manager received it and was not put into the bank or accounted for as used for business. I think an auditor would say yes. I do think there is a business casualty that would not go to the Sch A. However, those causlties require trying to collect it etc - good luck- the attorney would show attempts to collect and track..

[BOB W]

Where is the police report?

[MAJ]

Rent -- or lack of....

I agree - Is there a Police report to back up the claim? This would help (?) in the event of an audit. But still does not get you the money back!

Can the ex-manager be given a 1099-MISC for the missing Rent monies?

Moving forward it may be wise to include some type of actionable item in a contract of the manager. If rent is collected but deposits are short then ......xxxxxxx. Repay etc. This gives you a leg to stand on if you take him to court.

[Nashville]

Why a Police Report?

I agree - Is there a Police report to back up the claim? This would help (?) in the event of an audit. But still does not get you the money back!

We haven't yet established that this is a casualty loss. We haven't yet established it is even a theft. Why would a police report be required?

Lots of deductions are legitimate under the umbrella of being "ordinary and necessary" but are clearly the result of sloppy management and profits that fall through the cracks due to ownership or management stupidity.

[Davc]

Though thefts and casualties go on the same form the rules are different. This situation is not a casualty and may not be a theft.

[BOB W]

Money missing? Not a theft? Sloppy bookkeeping? No police report? None of this adds up. I now want to look at the owner....................to see what is up with him.

A police report can be filed without accusing a particular person. Leave it up to the police to get to the bottom of the issue, unless the owner has something to fear.

[jimenright]

I thank you all for your replys.

It will be a few months before the tax return will have to be filed. I am trying to get a "heads up" on the problem.

I believe that all of the rent will have to be reported on the Sched E. If a bad debt is claimed it would end up on Sched D or if a casualty loss on the Sched A. In either case the loss could be less than if reported as an expense on the Sched E. I am still wondering if the missing money could be claimed on the Shed E. Perhaps as a professional fee or just "lost rent money?"

[ChEAr$]

It will be a few months before the tax return will have to be filed. I am trying to get a "heads up" on the problem.

I believe that all of the rent will have to be reported on the Sched E. If a bad debt is claimed it would end up on Sched D or if a casualty loss on the Sched A. In either case the loss could be less than if reported as an expense on the Sched E. I am still wondering if the missing money could be claimed on the Shed E. Perhaps as a professional fee or just "lost rent money?"

Quite right. Since the on site manager was the agent of the landlord, the rent WAS received, but verify all figures with the payors first.

Then you have a theft loss properly reportable on the schedule e provided a police report has been filed.

[JON]

If it is a business and it is

The loss goes on E.

[Kram BergGold]

My take

First verify that the rent checks were cashed.
If not get tenants to write new checks, end of problem
If cashed then see if you can get the manager to pay up. If not go to court. If this fails you have a business theft loss. This gets claimed on Form 4868 and then transfered to Form 4797.

[taxea]

First--what does "missing rent money" mean? Was it collected by mgr and not received by owner? Who deposits the rent? Did it ever get to the owner?

If the owner never received the rent but the mgr did then the owner does not include it in income but goes after the mgr for payment.

A police report documents the loss if there is proof that the mgr received and used the money personally and not for rental expenses.

What happened to the money needs to be determined prior to deciding the proper course of action to take

[JON]

Disagree a little

If the rents have always been given to the manager and the owner recorded them as rent. I think for Uncle Sam that would meant when the rentor gave the manager the check it was rent to the owner. If checks were made out to the owner or the owner's business and the manager took them some bank would have liability for that.