Renting house that has a mortgage

M

MichaelDonal

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If you own a property and it's your primary residence, you move out and rent it out so it's no longer your primary residence. The rent just covers the mortgage but, and excuse a possibly stupid question, are you supposed to treat all of the rent as income, despite 99% of it going on the mortgage?

So, if your mortgage was 1000 euro a month, rent is 1050 euro so you clear 50 euro, but after tax you don't get 1050 you only get 950 (for arguments sake).

As I said, this is probably a stupid question but I'm confused. Is there some sort of write off of a certain amount you can apply?
 
You can only claim 75% of the interest portion of your mortgage, and this can only be claimed if you have registered your tenant with the PRTB.
EG: €1000euro repayments if €300 is off the prinipal €700 would be interest, 75% of €700 can be claim = €525 could be claim;
You can claim other expenses repairs, Insurance, management company etc
 
When you are doing up your accounts in the following years you will be allowed to claim 75% of the Interest as an expense against the rent. You will need to change your Insurance to Buy to Let Insurance and you can claim this. You will need to register the Tenancy within one month of the Letting and you can claim the €90.00 and if you are even one day outside the month it will cost you €180.00. Make sure and have a proper lease agreement drawn up and keep the first letting to less than 6 months to see how you and the tenant are getting on. You can extend it afterwards if it is working out.
Make a reasonable valuation of the contents and make a list of all items and you can write a percentage of the value off against rental Income. You can claim for any repairs that you do after Tenants move in. Improvements cannot be claimed as an expense.
You should read up on all of the information on the PRTB website, there are numerous threads on askaboutmoney about landlord/tenant problems and you could explore the Irishlandlord site. LPT is not a definite deduction at the moment.
Being a Landlord is not very easy and you need to know the law on the matter. It might be no harm to get an accountant to do your accounts for the first time at least and the fee can be deducted from the rent.
Open a separate bank account and keep all receipts. I am sure I have forgotten to mention several other matters.
 
MichaelD you need to treat this as a business. And if you don't understand it you need to hire an accountant.

Are you PRTB registered, that's the most important thing tax wise.
 
If you have a job, and 40% of your income goes to paying the mortgage, it is still classed as your income, is it not?

However, if you do not have approval from your mortgage company to rent out the house, your lease may be invalid. And if you inform the mortgage company that you will be renting out the house, they are likely to change your mortgage to a buy to let mortgage which is more expensive.

As I have said many time before, renting a property is not as easy as it seems. You have to contend with the Residential Tenancies Act 2004 which give a lot of rights to tenants and it can be very difficult to remove them if all does not go well.

Furthermore, as Bronte says, you will need to treat it as a business. As such, you will be considered to know and understand all the relevant laws - the RTA 2004, the Housing standards for rented accommodation to name the two most important.

Procedures for failings by tenants (rent arrears, damages to the property, breach of lease, anti-social behaviour of tenants and/or their visitors etc) all require the correct format and may take months (or even years) to resolve. During this time you may not receive any rent and the tenant may over-hold (i.e. remain in the property even though they have been served with a Notice of Termination.

In all respects, as a landlord, you will be considered to know all the laws and any breach could cost you thousands of euros and no rental income.
 
facetious said:
...And if you inform the mortgage company that you will be renting out the house, they are likely to change your mortgage to a buy to let mortgage which is more expensive.
Click to expand...

Am I not right in thinking that while technically this can be the case; banks are not doing it at the moment but instead are reserving the right to do it? This also depends on the wording of your mortgage.
 
Just by way of a quick update, I'm learning all this now with the aim of possibly renting in the future so this is the painful, education part you're witnessing!

If I do rent it'll be legit, through the PRTB and legal. I'll also have read up on the suggested documents before doing anything. At the moment it's in the theory stage and I hadn't really considered the whole tax aspect of covering the mortgage.

As Facetious says, it's obvious that I would be taxed on it as income, it just somehow seems unfair if it's barely covering the mortgage. And I'm sure if I tell the taxman that it's not fair that he charge me, he'll let me off.
 
MichaelDonal said:
Am I not right in thinking that while technically this can be the case; banks are not doing it at the moment but instead are reserving the right to do it? This also depends on the wording of your mortgage.
Click to expand...
What the banks are doing, I don't know - I've no mortgage and I am in rented accommodation.

I just give information on the high possibility of what banks are likely to do. Different banks will do different things under different circumstances!
 
MichaelDonal said:
Just by way of a quick update, I'm learning all this now with the aim of possibly renting in the future so this is the painful, education part you're witnessing!

If I do rent it'll be legit, through the PRTB and legal. I'll also have read up on the suggested documents before doing anything. At the moment it's in the theory stage and I hadn't really considered the whole tax aspect of covering the mortgage.

As Facetious says, it's obvious that I would be taxed on it as income, it just somehow seems unfair if it's barely covering the mortgage. And I'm sure if I tell the taxman that it's not fair that he charge me, he'll let me off.
Click to expand...

The rent may barely cover the mortgage, then you have to add in Property tax, NPPR, PRTB, damages, appliances breaking down, re-decoration after several years (which you probably wouldn't do if you were occupying the house yourself), or before new tenants move in.

If all goes well, you might come out with a few hundred euro gain per annum - hopefully.

To actually make a profit, I think that you need less than a 50% mortgage.
 
I'm assuming OP can't sell the property because he is NE and because he won't be paying rent elsewhere (staying with family, partner, going abroad).


If Op can sell or is considering paying rent elsewhere then Facetious is right -it's hardly worth it financially, and less emotionally.

(NPPR has now gone and he'd pay property tax anyway, but ,still hardly worth it).
 
oldnick said:
I'm assuming OP can't sell the property because he is NE and because he won't be paying rent elsewhere (staying with family, partner, going abroad).


If Op can sell or is considering paying rent elsewhere then Facetious is right -it's hardly worth it financially, and less emotionally.

(NPPR has now gone and he'd pay property tax anyway, but ,still hardly worth it).
Click to expand...
Thanks for the correction, oldnick.

Not having to pay these various taxes - I don't follow them to closely!! It seems that one year they're here and the next they're gone.
 
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