When reducing the rent in exchange for renovation work, is it better from a tax standpoint to simply reduce the rent for that month or pay the tenant and leave the rent set? Are there other issues I should be considering?
There are 2 duties, the tenant pays rent I fix things up. I never let the tenant do work. In order to have control over the quality of work. I always use my guys.
I have, on very rare occasions, hired my qualified tenants to work on property that they do not live in. They get paid just like any other worker.
The majority of tenants are not qualified to do any repairs. They will claim that they know how, but they don’t.
If work is substandard, it is easier to withhold pay than it is to collect rent that you’ve told the tenant he doesn’t have to pay.
Unless your tenant has a lot of experience, holds a contractor’s license, and is bonded and insured, it’s better to not permit tenants to work on your properties.
As Bluemoon and tatertot already said, it’s usually not a good idea to let tenants do any work. The only things I’ve allowed so far is a lady did some painting on the house she lives in (inherited tenant) and I paid a tenant to clean up the yard of the house he was going to move into. There were a TON of leaves, pine needles, and branches in the yard because the house had been vacant for a long time prior to our purchase. He offered to do it for $30 and it would’ve taken me several hours to clean it up. That one was a no-brainer for me.
If you decide to let your tenant do some work, I would have an agreed upon price for the work in advance. Bid by the job, not by the hour. I would let him/her know that they need to pay the rent as scheduled and then they’ll be paid for their job at the completion of the work after you’ve inspected it. You want to keep the tenant trained to pay on time. I think it’s a bad idea to do a rent reduction instead of having them pay the full rent and get paid for their work.
While I agree with the others, I will answer that question more directly.
From a tax standpoint it’s the same.
You are supposed to show on taxes that rent was reduced in compensation for services rendered.
If you are going to let tennants do the work, I would suggest charging full rent and then paying them.
Thank you for the responses. This is a special circumstance or I would definitely not even consider it. I think we will separate the rent and the labor.