Vacancy and Collection Loss
A vacancy and collection loss factor should take into account lost rent due to tenant turnover as well as uncollected monies because of tenant defaults. The vacancy and collection loss factor should be based upon historical project results as tempered by vacancy and collection results for similarly situated projects.
If a tenant fails to pay his rent, can you deduct the contractual lost rent on your tax return? No. As a cash-basis taxpayer you have the “advantage” that you do not include in income monies not received, but also it would be improper to take a deduction for a bad debt expense. No monies were spent to service or improve the property, and therefore no deduction was created.
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