Can you deduct unpaid rent as a loss?
Not if you are a cash basis landlord, which most individual owners are. Publication 527 says not to deduct uncollected rent, because you never included it in income. The loss already shows up as lower income; accrual basis owners who reported the rent may be able to claim a business bad debt instead.
Why there is nothing to deduct
Publication 527 says it directly: if you are a cash basis taxpayer, do not deduct uncollected rent. Because you have not included it in your income, it is not deductible. A cash basis landlord reports rent only when it is received, so rent that never arrives never became taxable. Deducting it as well would count the same loss twice.
Example a made-up 12 unit building bills $180,000 of rent for the year and collects $174,000. On the cash method, rental income is $174,000. The unpaid $6,000 is already missing from income, which is the whole tax benefit. There is no extra $6,000 deduction.
The same reasoning covers vacancy. Publication 527 says you cannot deduct any loss of rental income for the period a property is vacant, though you can still deduct ordinary and necessary expenses while it is held out for rent.
If you use the accrual method
Accrual basis owners report rent when it is earned, so unpaid rent was already counted as income. Publication 527 says that if you can't collect it, you may be able to deduct it as a business bad debt. That requires showing the debt is actually uncollectible, so keep the collection record: notices sent, payment plans offered, the court judgment and any collection agency report. Our post on cash vs accrual explains the two methods in more depth.
| Cash basis | Accrual basis | |
|---|---|---|
| When rent is income | When received | When earned |
| Rent never collected | Never income, never deducted | Already income; may be a business bad debt |
| Collected in a later year | Income in the year received | Already counted; reduces the receivable |
When you keep the security deposit
Publication 527 says not to include a security deposit in income when you receive it if you plan to return it, but if you keep part or all of it because the tenant did not live up to the lease, that amount is income in the year you keep it. Applying a deposit to unpaid rent therefore turns it into rental income that year.
Example a made-up tenant leaves owing $3,600. The owner keeps the $1,200 deposit and applies it to the debt, in a state that allows it. On the cash method, $1,200 becomes rental income this year. The remaining $2,400 is not income and not a deduction. Next year a small claims judgment brings in $900; that $900 is rental income next year.
Check your state's deposit law before applying a deposit to rent. Deadlines and itemization rules vary; see security deposit limits and return deadlines.
What you can still deduct
The unpaid rent itself is off the table on the cash method, but the costs of dealing with a nonpaying tenant are ordinary rental expenses. The Schedule E instructions list legal and other professional fees as their own line, and repairs after a move-out go on the repairs line as usual.
- Court filing and service fees for an eviction or a judgment.
- Fees paid to an attorney or collection agency.
- Cleaning and repairs to turn the unit, kept separate from improvements.
- Advertising to re-rent the unit.
Keeping the books honest
Even on the cash method, track what each tenant owes in a rent roll or tenant ledger. That is how you know who to follow up with, and it gives your tax preparer the trail if a later collection or a deposit application needs to be reported. When a balance is truly lost, write it off in the tenant ledger with a dated note, without touching income or expenses in the cash books.
How DoorKeeping handles it
DoorKeeping gives each tenant a memo like 12B SMITH and an exact amount with its own cents, so you can see which rents arrived in your own bank and which did not. Each property keeps its own ledger and deposits held, and you can ask your AI app who owes what. Applying a deposit or writing off a balance waits for your one-tap approval. DoorKeeping does not give tax or legal advice.
Sources
- IRS, Publication 527, Residential Rental Property, read Oct 29, 2026
- IRS, Instructions for Schedule E (Form 1040), 2025, read Oct 29, 2026
Questions
- Can I write off unpaid rent on my taxes?
- Not as a deduction if you use the cash method. Publication 527 says uncollected rent is not deductible because it was never included in income.
- Is a kept security deposit taxable?
- Yes. When you keep part or all of a deposit, for example for unpaid rent, that amount is income in the year you keep it.
- If a former tenant pays years later, is it taxable?
- For a cash basis landlord, yes, in the year you receive it, because it was never reported before.