Buying a house and renting some of it

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clonbolia

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Hi

The wife and I are looking to buy a house with a mortgage. In our area - some of the better value houses are large rambling yokes far too large for us and sometimes containing a basement apartment.

One option we're looking at is to buy one and then rent out a basement or floor to a tenant. What are the tax (dis)advantages of this?

From perusing this board and elsewhere - it looks like?

1. We would only pay income tax on the rental income if it exceeds €10,000 per year

2. Even if it did exceed €10,000 - we'd be able to offset our mortgage interest against this rental income? Right? Essentially making the rental income from a basement apartment essentially tax free for us? Or am I missing something?

3. We'd also be able to offset expenses associated with repairs, etc to the basement apartment against rental income? For example, could be capitalise the cost of renovation and then depreciate it over time?

Any thoughts?
 
Where to begin ?

So many misconceptions and ignorance re the (Irish) tax system. This is an Irish site!?

Essentially you're taxed at your marginal rate of tax on rental profits (rents less adjusted-expenses (i.e. mortgage interest and day-to-day/operational expenses)). There is an additional allowance each year for a few years for capital expenditure.
 
The rent-a-room scheme is the best tax-free money making activity still allowed in ireland. And you don't get involved in the usual legal crap that renting an apartment on the normal bais involves. revenue have details - google IT70 for rental info including the rent-a-room scheme.

Basically up to 10k tax -free if the room/s are within your house. Don't charge a penny over 10Kor else you're taxed on the lot. You can charge for electricity and gas usage.

No capitalising No depreciation on this scheme.
 
Might want to watch though if basement or floor are seperate units to the main house rent a room might not apply.
 
Kildavin said:
Where to begin ?

So many misconceptions and ignorance re the (Irish) tax system. This is an Irish site!?

Essentially you're taxed at your marginal rate of tax on rental profits (rents less adjusted-expenses (i.e. mortgage interest and day-to-day/operational expenses)). There is an additional allowance each year for a few years for capital expenditure.
Click to expand...

It appears the ignorance is yours Kildavin...!

[broken link removed]
 
I doubt the rent a room relief would apply to a self contained apartment, as seems to be the case here
 
Clonbolia you are confusing two different tax schemes for landlords. If you are going for the rent a room scheme you don't offset mortgage or repairs. You then just charge rent under the limit and you pay no tax.
 
clonbolia said:
Hi

The wife and I are looking to buy a house with a mortgage. In our area - some of the better value houses are large rambling yokes far too large for us and sometimes containing a basement apartment.
Click to expand...

tvman said:
I doubt the rent a room relief would apply to a self contained apartment, as seems to be the case here
Click to expand...

Sometimes! You're right though, it won't apply to an apartment, but would apply to rooms in a large rambling house.
 
I was told years ago when applying for my large self-contained basement for RAR that it must be internally connected. (I can't imagine there are many basements that are not connectable from the interior of the rest of the house)

As a side-point I had the TV licence people looking for tenant's licence in the "downstairs apartment". I don't even know how they knew there was a downstairs apartment as we never advertised or publicized it as such. I said this was a lodger inside the house.Again, he asked whether it was connected internally and was satisfied that there was no need for a separate licence.

Just to be sure that it was regarded as being regarded as rooms in the house instead of a separate apt I never applied for a separate electricity bill and installed a meter instead. Thus it is one electricity bill for the whole building and the lodger pays me direct.
 
Thanks all. Very helpful.

one thought occurred to me. Can you apply all of the mortgage interest on such a residence? If you yourself live in, say, half of the ground area, can you only expense 50% of the interest on the mortgage? How do they apportion it? if at all?
 
oldnick said:
Basically up to 10k tax -free if the room/s are within your house. Don't charge a penny over 10Kor else you're taxed on the lot. You can charge for electricity and gas usage.
Click to expand...
Utilities [elec and gas] are included in the €10k.
 
clonbolia -I repeat -please refer to Revenue IT70 on rental income where there is a section on rent-a-room.In that section you will be directed to further more detailed information on rent-a-room.
Anyway,YES, you can claim MIR on all the house with this scheme.

As regards charging for utilitIes:- I confess to my own ignorance on this issue. And I wonder if a tax expert can advise on the source of info for this matter...

I'm aware that tax accountants state that utilities must be included in the scheme's limit of 10k.
But this could mean that if you have a large basement and a couple of work-at-home tenants who (like my wife) insist on heating and lights all the time then its possible a bill of 3.000 euros can be run up each year.
This would negate much of the benefit of the scheme. In theory (though unlikely in practice) if utility bills exceeded 10k then the LL would be making nothing.

I haven't seen anything from Revenue that states utiliites must be included within the limit-whilst I note references to ancillary services(laundry, cleaning,food).i.e. if you charge say 12.000 for rooms plus ancillary services then you will pay tax on the lot.

Are utilities ancillary services? Maybe so

What if the tenants pays 10k to the LL but pays the utility companies directly ? In this way the Ll is not collecting more than 10k p.a.
 
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