Landlord forgiving rent - tax impacts?

[Sibley]

My parents are landlords. Their tenant is struggling due to corona layoffs, and he's a good tenant. They're going to not charge him rent for a few months. Obviously this will decrease their rental income, but are there any other tax implications?

[secondcor521]

Not for your parents.

An argument could be made that it is debt forgiveness to the tenant and would therefore be taxable income to him.  But I think a better argument is that they're temporarily reducing the rent to $0 per month, and he's paying that amount.  Ergo, no debt forgiveness, ergo no income to him.

[Sibley]

Cool. They'll be ok for a few months. The tenant had just gotten a good job, was in the probationary period, and laidoff right away. Once things calm down, there's an excellent chance the guy will get rehired (they really didn't need to lay him off - city gov't job, but that city is a little dumb sometimes!).

[Paul der Krake]

Isn't the tenant eligible for unemployment insurance, including the unprecedented expansion that was signed into law today?

[Sibley]

Isn't the tenant eligible for unemployment insurance, including the unprecedented expansion that was signed into law today?

Mom said that the tenant was applying for unemployment and Medicaid and had cancelled everything he could (comcast, etc). He lives upstairs (duplex), so they're friendly.

She's dug in and not willing to take any disagreement. Parents won't fall behind on bills due to losing a month or 2 of rent income, and if the tenant moves out they'll likely have a hard time replacing him. In the war of keeping parents above water financially, this battle is not one I'm going to fight.

[lhamo]

Presumably any discount in rent could be considered a gift.  As a married couple they can each gift any individual up to I think 12k/year (may be higher now -- haven't checked limits recently), so 24k total, without having to report it/have it counted against their estate for eventual gift tax purposes.

Are they struggling financially themselves?  If not then I think it is great they are choosing to be kind. 

[seattlecyclone]

When you rent a dwelling for less than a fair market price it's considered "personal use" by the IRS. This means you may not be able to deduct expenses for the period where you charge less than market rates.

See Tax Topic 415 for more information about this.

[Sibley]

Thanks. Will save for next year's taxes. Mom passed on that the guy had a lead on some work, so we'll see what happens.