Help in taxation for rental income

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bibiphoque

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Hi,
Like many people, we have bought at the wrong time (2007) and we cannot sell our apartment. The only option we have is to rent it and then go rent the three bedroom house we are looking for.

I realise now that there are tax implications in doing this (even though the rent won't cover fully the mortgage) and I'm looking for information of what those tax will be.

I did a bit of reading on the Revenue website but I need help just to make sure I get a rough number of what this is going to cost us (so I can budget for it). I will get an accountant to do that more accurately.

Our mortgage is €1050 a month, Mortgage allowance €130 (which I believe we will loose when we rent our property).

Rent: €900, accounting for 1 month no rent, total for the year €10000

Deductions:

Housecharge 100
Maintenance fee 900
Mortage Interest @2% 5300
Boiler service 79
Mortage protection 670
letting agency 1000

Total = €1951, Income tax @ 41%, USC @ 7% and PRSI @ 4%, I owe €1014 to Revenue.

This is a rough calculation but does it look correct?

Also, what make sense in order to not pay tax? reduce the rent? do more yearly renovation in the apartment?

Thanks in advance.
 
Your figures look right to me, except"Mortage Interest @2% 5300". i would check this one, as i am assuming that you are allowing fro full tax relief on Mortage Interest. I think that may be reduced to 75% now, with further reductions down the line. I am not sure of the status on this.
 
You will also have to pay NPPR (Non Principal Private Residence) charge of €200. Unfortunately this is not tax deductible, although the Revenue have not said this for definite.

I don't think the household Charge is tax deductible either.

Your mortgage interest is only allowed @ 75%.

You can claim Capital Allowances on furniture and fittings @ 12.5% of their current value for 8 years until the total value is written off.
 
Here is a sample P&L you should make out and keep the figures as you will need to check them each year. These figures are purely approximate and are for illustration. You should have more wear and tear in a large house and your interest may be higher or lower accordingly. You can carry any losses forward from previous years so if the final figure is negative you can carry forward to next year.

Wear & Tear

12.5% over 8 years

Item |Amount €
3 Piece Suite |500
Table/Chairs |600
Washing Machine |400
Fridge | 200
Blinds/Curtains | 800
Heaters | 300
Flooring/Carpets | 1500
Kitchen general | 500
Total | 4800

(1) 600

General

Expense |Amount €
Management Fees |800
Insurance House|400
Insurance Life|500
PRTB | 90
Cleaning | 110
Boiler Service | 100
Total | 2000

(2) 2000

Repairs

Expense |Amount €
Handyman painter|100
Plumber |100
Electrician|400
Gardener|100
Accountant|300
Total | 1000

(3) 1000

Interest (75% of annual interest note: not mortgage repayments)

Total annual 4000 * 75%

(4) 3000

Total deductions 1 + 2 + 3 + 4
(a) 6600

Total rental return 900 * 11
(b) 9900

Amount due for income tax b - a
3300

Expenses not allowed

NPPR of €200
Property Tax (although not clearly stated by revenue).
Initial fit out of furniture costs.
Initial repairs to bring place up to standard.
Initial cleaning.
Labour costs carried out by the Landlord at any time.


The Form12 should be completed and sent to revenue by October 31st of the following year in which you are filing for i.e. it is due in
October 2013 for this year.


*Disclaimer : Figures are made up. Accountants may get paid more or less.
 
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Just two additional points to consider.
1. PreLetting expenses cannot be deducted i.e. expenses incurred prior to your FIRST rental. Any expenses you incur once tenants are in place or between tenants can be deducted.
(Wear and tear on fixtures and fittings is not included in the statement above)

2. You must register with the NPPR in order to be able to claim relief on the mortgage payments.

One question - do you need mortgage protection? IE if the apt. is now rented then you are less likely to need to/be able to make a claim. I know you can write it off against tax but you are still part funding it. Does renting out the property invalidate the terms and conditions of the mortgage protection?
 
Macstuff said:
Just two additional points to consider.
1. PreLetting expenses cannot be deducted i.e. expenses incurred prior to your FIRST rental. Any expenses you incur once tenants are in place or between tenants can be deducted.
(Wear and tear on fixtures and fittings is not included in the statement above)

2. You must register with the NPPR in order to be able to claim relief on the mortgage payments.

One question - do you need mortgage protection? IE if the apt. is now rented then you are less likely to need to/be able to make a claim. I know you can write it off against tax but you are still part funding it. Does renting out the property invalidate the terms and conditions of the mortgage protection?
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In relation to the above:
1. A strict interpretation of the legislation would mean you are not entitled to wear & tear on furniture & fittings bought prior to letting, but I've never seen an issue with this in practice. However, the fixtures & fittings brought in are already some of the way through their tax-life, so they can only be written off over the remainder of it, at 12.5% of their cost p.a.

2. Should be PRTB, not NPPR. non-payment of NPPR has no income tax consequence, but is expensive in other ways!
 
Macstuff said:
One question - do you need mortgage protection? IE if the apt. is now rented then you are less likely to need to/be able to make a claim. I know you can write it off against tax but you are still part funding it. Does renting out the property invalidate the terms and conditions of the mortgage protection?
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I'm not sure if I understand. For me, the Mortgage protection is there to help pay it off in case I or my partner dies. Why would this be different if you are renting the place?
Also, when we bought our apartment, it was mandatory to take a Mortgage protection. Has this changed now?
 
We have an apt for last 10 years and when we took out the mortgage we took out mortgage protection ins on it. we were then told after a few years of paying this that we did not need mortgage protection for the apt as it was an investment property and if either of us died the place would be sold to pay back the mortgage, but as we had paid it for a number of years we kept paying it as it was basically a life insurance instead, the only thing is that it is reducing every year we have the property. We are not in negative equity thankfully so if anything did happen to either of us the mortgage would be cleared if we sold the place and we would still get something from the policy but as i said its reducing so i will need to see where we stand with the policy now, as it costs €32 pm it did not seem like a huge cost.
 
Hi - just a quick question in relation to this. Am I correct in saying that you do not have to pay PRSI on your taxable rental income if you are a PAYE worker?

Also, if I'm making a loss on my rental property - do I still have to pay income tax and the USC on the rental loss?
 
Am I correct in saying that you do not have to pay PRSI on your taxable rental income if you are a PAYE worker?
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Yes but they plan on changing this in 2013
Also, if I'm making a loss on my rental property - do I still have to pay income tax and the USC on the rental loss?
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Really depends on what you mean. If your rent - outgoings = positive figure then yes. BUT if your mortgage repayments are greater than rent then you are still liable on tax on the profit as per above calculations.
 
Thanks for that. Yes I meant a rental loss as in rental income less deductions = negative figure. Then this means no tax applies?
 
I'm jointly assesed with my wife. She is a PAYE worker where as I am not. We've been paying PRSI and levies for the last few years. Should we not have been?
 
Thanks for that. Yes I meant a rental loss as in rental income less deductions = negative figure. Then this means no tax applies?
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Yes. And you can carry the loss forward to the following year. So if the next year yoiu make a profit you can deduct the loss from it. If it's still negative you can carry that forward to the following year, and so on.
 
I'm jointly assesed with my wife. She is a PAYE worker where as I am not. We've been paying PRSI and levies for the last few years. Should we not have been?
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On your rental income portion ? Or are you referring to general taxation ?
 
elcato said:
Yes. And you can carry the loss forward to the following year. So if the next year yoiu make a profit you can deduct the loss from it. If it's still negative you can carry that forward to the following year, and so on.
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Thanks Elcato!
 
Hi i had a tenant for 9 months paid no rent but cost me a fortune with solictors , court and PRTB , I presume because tenant was paying no rent during that time , i cannot clain those expenses in my 2011return . Advice appreciated
 
Sorry about your situation norejon but we all have been there. To answer your question you show the losses in 2011 and carry them forward to the 2012 returns.
 
thanks by losses do you mean solictor fes etc , and where do i put the losses on form . Is it in the expenses section.
 
norejon said:
thanks by losses do you mean solictor fes etc , and where do i put the losses on form . Is it in the expenses section.
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Rental income is assessed to tax on the basis of rent receivable - this is to avoid certain avoidance mechanisms.

So in the first instance you are taxable on the all of the rent that you were entitled to receive in the year. There is a specific relief available for situations like yours (under Section 101 TCA 1997), which means that the total rent receivable can be reduced by the amount of any rent not recoverable... page 3 of this article has quite a good explanation of it [broken link removed].

The costs/fees etc... incurred in pursuing the tenant for the rent are fully allowable as expenses (as they are wholly and necessarily incurred in carrying on the letting business), and may result in there being a loss for the year.
 
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