Everybody keeps repeating that landlords can write off rent not received as a tax deduction. You can’t, and if you think about it for a minute, you’ll see it doesn’t make any sense.
Imagine a landlord with 10 properties that rent for $100 per month. That’s $1,000 per month rental income, or $12,000 per year. Assume 10% tax rate, the landlord clears $11,000 after tax.
Imagine now that half of them are vacant. The landlord is now bringing in $500 per month, or $6000 per year. Is it your expectation that the landlord can somehow deduct the other $6k in rent not paid and pay $0 per year in taxes??? No, the landlord would now pay $600 a year in taxes on that $6k in rental income. Naturally the landlord doesn’t pay taxes on money they didn’t receive, but it’s always better to have 90% of the rent after tax, than 0% of it. It is always always more profitable to receive rent than not.
Now, as others have mentioned, it may be worthwhile to lose a few months of rent in return for signing a higher-dollar lease over a 10 year term.
But if you leveraged to buy the property, then you deduct the interest payment from the rental income. In the case of a vacant property, the interest cost will get deducted from another source (other rental income perhaps).
Then, come tax time, you net out the rental income. If they do it exactly right, it could net out to zero. And so pay no taxes since they did not make any money.
On paper this sounds bad. But because the expectation that property grows in value, they gain capital growth. This isn't taxed until sale time, but capital gains tax is very favourably taxed in most juristictions. Not to mention depreciation over time (a paper loss tbh) can deduct taxation.
After a few more years, they sell the property, using the old (high) rental income value as the valuation figure, pocketing the capital growth while paying little in taxes from the rental (which goes into the cost of debt).
This is why rents would remain high - you need high rents to value the property as high value.
Yes, you can deduct expenses from your rental income and you only pay taxes on the profit (income minus expenses). Of course. But if you have a mortgage, you have to pay it whether you receive rent or not, so it’s totally irrelevant to the discussion - there is still never a case where you are better off, tax-wise, to not earn rent than to earn it.
Then you mention capital appreciation. Same thing. If I sell a property at a profit, then I’m always better off having earned rent from it while I owned it than not. Additionally, you don’t “claim a value” on a property when you sell it, someone pays you for it based on fair market value. For commercial property, the key measure of value is the rental income - when you buy or sell it, you advertise the cap rate (annual percent of investment made back in profits after expenses) and also the vacancy rate. Buyers get a copy of your income statement for the property going back a few years. If the property has been sitting half-vacant, then it will almost always sell for less money, since it’s not earning.
Bottom line, taxes are calculated as a percentage of profits. Outside of some esoteric situations, the money you save on taxes is less than the money you lose in profit.
Then you are committing tax fraud. Also, Airbnb issues 1099’s for their payments to you above a certain amount, which they also helpfully furnish to the IRS. Wouldn’t recommend leaving Airbnb income off your taxes.
Imagine a landlord with 10 properties that rent for $100 per month. That’s $1,000 per month rental income, or $12,000 per year. Assume 10% tax rate, the landlord clears $11,000 after tax.
Imagine now that half of them are vacant. The landlord is now bringing in $500 per month, or $6000 per year. Is it your expectation that the landlord can somehow deduct the other $6k in rent not paid and pay $0 per year in taxes??? No, the landlord would now pay $600 a year in taxes on that $6k in rental income. Naturally the landlord doesn’t pay taxes on money they didn’t receive, but it’s always better to have 90% of the rent after tax, than 0% of it. It is always always more profitable to receive rent than not.
Now, as others have mentioned, it may be worthwhile to lose a few months of rent in return for signing a higher-dollar lease over a 10 year term.