Empty Store Fronts

[Weiser]

This is an issue that has had me irritated for years. A landlord of commercial property wants to raise rents. The current tenant can't make the new rent and moves out. The property then remains vacant for months/years on end. Surely there must not be a tax benifit to the landlord. Can they really write off a vacancy?

I ask this because Copperfields used book store has not been replaced by another tenant. If there is somehow a tax benifit to having a vacancy instead of renting at the market rate then it amounts to a price support for commercial property. If that is the case I'm opposed to this intervention in the rental market. Its not the first time I've witnessed this. Having been an apartment manager for 13 years my job was to find good tenants and keep vacancies to an absolute minimum. You don't make money with frequent turnover.

Could someone please enlighten me.

[Hotspring 44]

I don't know the answer but I wouldn't be Surprised if that would be within a "Capital Gains Loss" tax deduction clause of some sort.

This is an issue that has had me irritated for years. A landlord of commercial property wants to raise rents. The current tenant can't make the new rent and moves out. The property then remains vacant for months/years on end. Surely there must not be a tax benifit to the landlord. Can they really write off a vacancy?

I ask this because Copperfields used book store has not been replaced by another tenant. If there is somehow a tax benifit to having a vacancy instead of renting at the market rate then it amounts to a price support for commercial property. If that is the case I'm opposed to this intervention in the rental market. Its not the first time I've witnessed this. Having been an apartment manager for 13 years my job was to find good tenants and keep vacancies to an absolute minimum. You don't make money with frequent turnover.

Could someone please enlighten me.

[Weiser]

I was just joshing when I started the thread about occupying the language. However I'm serious about this issue.

If I own rental property don't I want to maximize my return on my investment by having full occupancy? I have to admit with all the foo foo touristy businesses on Main St. I was bummed that one of the stores I was actually interested in patronizing was going out of business.

Unless there is some tax advantage or some other mitigating circumstance I sure wouldn't get rid of a steady tenant on the chance I could get someone that would pay more for the space.

Why would the landlord make that decision unless it was to their financial advantage?

[tommy]

I asked my accountant whether I could deduct lost rent, from a building that's vacant, and he said "no". Lost rent is not an expense - there's nothing to deduct.

I don't know the answer but I wouldn't be Surprised if that would be within a "Capital Gains Loss" tax deduction clause of some sort.

[Shandi]

It does mean that you have "less income", which could be a benefit in the overall scheme of things.

I asked my accountant whether I could deduct lost rent, from a building that's vacant, and he said "no". Lost rent is not an expense - there's nothing to deduct.

[Moon]

True--if you're right on the line between one tax bracket and another, getting into the lower bracket
could save you more in taxes than you'd lose in income.

It does mean that you have "less income", which could be a benefit in the overall scheme of things.

[tommy]

I can only think that a used book business like the one Copperfields ran on Main St is a losing proposition these days, when you can go to Amazon.com, look for a subject or a book you want, get reviews for it, and choose a used book reseller to send it to you at a great price... as opposed to browsing the stacks of a used bookstore in the unlikely chance of finding something that appeals to you.

I'd guess that's why Copperfields left, altho I don't know for sure

I was just joshing when I started the thread about occupying the language. However I'm serious about this issue.

If I own rental property don't I want to maximize my return on my investment by having full occupancy? I have to admit with all the foo foo touristy businesses on Main St. I was bummed that one of the stores I was actually interested in patronizing was going out of business.

Unless there is some tax advantage or some other mitigating circumstance I sure wouldn't get rid of a steady tenant on the chance I could get someone that would pay more for the space.

Why would the landlord make that decision unless it was to their financial advantage?

[Barry]

True--if you're right on the line between one tax bracket and another, getting into the lower bracket could save you more in taxes than you'd lose in income.

This is not correct. Tax bracket only affect the amount of money in that tax bracket (the amount over x, which starts that tax bracket), not your overall income.

[Moon]

I'll bet i'm not the only subscriber who doesn't understand this. Care to explicate?

This is not correct. Tax bracket only affect the amount of money in that tax bracket (the amount over x, which starts that tax bracket), not your overall income.

[rossmen]

copperfields used books claimed they closed down because the building owner, ron basso, raised the rent. they did have a sweet deal because of their loyalty in returning after he tore down their old space and built new. my accountant said that lost rent was deductable if the space was available and advertised. my experience after working with seven different accountants is that seven different answers are possible for the same question.

I can only think that a used book business like the one Copperfields ran on Main St is a losing proposition these days, when you can go to Amazon.com, look for a subject or a book you want, get reviews for it, and choose a used book reseller to send it to you at a great price... as opposed to browsing the stacks of a used bookstore in the unlikely chance of finding something that appeals to you.

I'd guess that's why Copperfields left, altho I don't know for sure

[Barry]

I'll bet i'm not the only subscriber who doesn't understand this. Care to explicate?

Here you go, from https://www.moneychimp.com/features/tax_brackets.htm



{end of copy/paste}

So if your income in this example declines from 100,000 to 70,000 your "tax braket" declines from 25% to 15%, but only the part of your income that was over 70,700 was taxed at that higher rate. The 70,000 that remains is still taxed at the same rate as it was when you earned 100,000 (we wish! )

In the $100,000 example, 25% is your marginal tax rate, which is the rate your last dollar was taxed at. Any deductions are "worth" that much. So if you take an additional $100 deduction, your taxes will go down $25. If you make $100 additional income, you will have to pay an additional $25 in taxes.

And like the example above states, your average tax rate is different, because different parts of your income get taxed at different rates. Capisce?

[Shandi]

Tax tables and laws of any kind can be manipulated by those who have the knowledge of loopholes. That's why it pays to have an accountant who will really work for our financial interests. Any group of "experts" may give us different answers to the same questions, depending on their perspective "interpretation".

We're aware that when we're trying to buy a large item, such as a car or house, we want to show a high income, but when it comes time for taxes, we want just the opposite. Both can be achieved. Business owners sometimes keep "double ledgers" for this purpose. I'm not saying that this is the case here, but just pointing out that we really can only speculate what's going on, unless we're on the inside.

It's common knowledge that many bookstores are having a tough time competing, even in a community where people are willing to pay more to support a local business.

copperfields used books claimed they closed down because the building owner, ron basso, raised the rent. they did have a sweet deal because of their loyalty in returning after he tore down their old space and built new. my accountant said that lost rent was deductable if the space was available and advertised. my experience after working with seven different accountants is that seven different answers are possible for the same question.

[Keith of all trades]

This is an issue that has had me irritated for years. A landlord of commercial property wants to raise rents. The current tenant can't make the new rent and moves out. The property then remains vacant for months/years on end. Surely there must not be a tax benifit to the landlord. Can they really write off a vacancy?

I ask this because Copperfields used book store has not been replaced by another tenant. If there is somehow a tax benifit to having a vacancy instead of renting at the market rate then it amounts to a price support for commercial property. If that is the case I'm opposed to this intervention in the rental market. Its not the first time I've witnessed this. Having been an apartment manager for 13 years my job was to find good tenants and keep vacancies to an absolute minimum. You don't make money with frequent turnover.

Could someone please enlighten me.

I've been told by a local commercial landlord that one reason they let commercial spaces sit vacant, instead of renting them at any rate just to fill them, is that often financing contracts they have on the property are based on potential rents, not current rent income. If they lower the rent to fill a space, their loans could be affected. Plus, a lower rent will reduce the market value of a property accordingly. So any missed rent is an acceptable short term loss, when compared to a long term devaluation of the property. Residential property value is somewhat related to rent value, but is also emotionally driven. Commercial landlords don't make buy or sell decisions on emotions.

I don't know why a landlord would evict a tenant because of this rationale, but people who are into commercial real estate in a big way are not worried about a few thousand dollars in lost rent in the grand scheme of things. There is the possibility that Copperfield's just realized that there wasn't money to be made in this scenario and used the rent increase as a plausible excuse to close the store and still stay in the good graces of those of us who actually buy books there and not just online.

I think of the old GNC and Pure Beauty spaces in the Redwood Marketplace . Those spaces have been vacant for a looooooooong time and I only presume that something along these lines is in play. I can only imagine what the owner of that shopping center is thinking with the CVS/Chase quagmire hanging out there.

[Weiser]

Keith,

Thanks for your reply. It helped me get a better grasp of the situation. Though as someone that managed residential rentals I can't imagine the financing would be that different in the commercial sector so that if the market dictated a drop in rental rates you would be prohibited from reacting to it.

I observed in Cloverdale last year many empty store fronts. I asked around if commercial rents were any cheaper and the answer was no. This helps to explain why.