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Probably it's better to write it off as a loss than lower the rent

by wdb 6y ago

ed25519FUUU 6y ago
The absence of income is not a "loss", certainly not a taxable one. This is not how landlords make money.
- pc86 6y ago
  The landlord's paying for the building no matter what, so it's possible that depending on how it's leveraged and their income overall, they'd rather lose money and get a reduction in taxable income than break even with lowered rent.
  - llampx 6y ago
    I'm no tax lawyer but I think you get to deduct the costs whether or not the apartment is rented out. Also you can only deduct costs from revenue. This is no VC backed entrepreneur with a growth story where you get more money with a negative contribution margin. ;)
    - MetalGuru 6y ago
      If it’s not a primary residence, you don’t get to deduct the taxes from other sources of income. It’s restricted to deducting from rental income. You can carry the loss forward though.
  - ed25519FUUU 6y ago
    I don't see any kind of mathematical gymnastics that has landlords making more money on vacancies. Any tax they'd save would be a fraction what would otherwise be revenue. Besides, real-estate investors attempt to keep their costs (interest, depreciation, etc) all very close to their revenue, not the other way around. Less revenue is simply less of a chance to deduct expenses (not to mention less money for them). The only way I think it makes sense is if they're sure they're going to be able to rent it for more if they hold out in a way that would make up for the short term loss.
    - slindz 6y ago
      I recall a comment suggesting financing terms can be impacted once a drop in rental rate is realized. An apartment with an assumed rental value of $X can sit empty and still be assumed to pull $X. As soon as they start renting it out for $Y, the financials might have to be re-evaluated, which might prompt extra collateral from the borrower. I have no idea how reliable this comment may have been, but it's an idea...
      - pc86 6y ago
        This is what I had in mind but admittedly I'm not an accountant, lawyer, or landlord so I don't know for sure :)
    - pengaru 6y ago
      A buddy of mine rents in a 90% vacant building he claims the owners haven't bothered putting tenants in at lowered rents because they're borrowing against the value established by the high rents. It's also a rent control scenario, which strongly disincentivizes ever lowering the rent.
thebean11 6y ago
Why?
- wdb 6y ago
  In some constructions you can use it to lower your taxable income, or helps lowering council taxes for empty buildings, etc. My family used these kind of tricks

Probably it's better to write it off as a loss than lower the rent

by wdb 6y ago

Probably it's better to write it off as a loss than lower the rent

ed25519FUUU 6y ago

The absence of income is not a "loss", certainly not a taxable one. This is not how landlords make money.

pc86 6y ago
The landlord's paying for the building no matter what, so it's possible that depending on how it's leveraged and their income overall, they'd rather lose money and get a reduction in taxable income than break even with lowered rent.
- llampx 6y ago
  I'm no tax lawyer but I think you get to deduct the costs whether or not the apartment is rented out. Also you can only deduct costs from revenue. This is no VC backed entrepreneur with a growth story where you get more money with a negative contribution margin. ;)
  - MetalGuru 6y ago
    If it’s not a primary residence, you don’t get to deduct the taxes from other sources of income. It’s restricted to deducting from rental income. You can carry the loss forward though.
- ed25519FUUU 6y ago
  I don't see any kind of mathematical gymnastics that has landlords making more money on vacancies. Any tax they'd save would be a fraction what would otherwise be revenue. Besides, real-estate investors attempt to keep their costs (interest, depreciation, etc) all very close to their revenue, not the other way around. Less revenue is simply less of a chance to deduct expenses (not to mention less money for them). The only way I think it makes sense is if they're sure they're going to be able to rent it for more if they hold out in a way that would make up for the short term loss.
  - slindz 6y ago
    I recall a comment suggesting financing terms can be impacted once a drop in rental rate is realized. An apartment with an assumed rental value of $X can sit empty and still be assumed to pull $X. As soon as they start renting it out for $Y, the financials might have to be re-evaluated, which might prompt extra collateral from the borrower. I have no idea how reliable this comment may have been, but it's an idea...
    - pc86 6y ago
      This is what I had in mind but admittedly I'm not an accountant, lawyer, or landlord so I don't know for sure :)
  - pengaru 6y ago
    A buddy of mine rents in a 90% vacant building he claims the owners haven't bothered putting tenants in at lowered rents because they're borrowing against the value established by the high rents. It's also a rent control scenario, which strongly disincentivizes ever lowering the rent.

thebean11 6y ago

Why?

wdb 6y ago
In some constructions you can use it to lower your taxable income, or helps lowering council taxes for empty buildings, etc. My family used these kind of tricks