# Key Post: The Revenue Guide to Rental Income



## Brendan Burgess (3 Jan 2002)

_    This is  a summary of the Revenue Commissioners leaflet IT 70 A Guide to Rental Income . I have edited out the least relevant bits and updated it for the Budget 2002 changes. The full document can be found [broken link removed]
_
*   What expenses can be claimed?*
The following are examples of the type of expenses that may be claimed
for:
Repairs i.e. decorating and general upkeep of the property
 Rents payable by the landlord in respect of the property i.e. ground
rent
Rates payable by the landlord i.e. water rates, refuse collection etc.
Cost of any service or goods provided by the landlord i.e. gas,
electricity, central heating, telephone rental, cable television etc. for
which they do not receive a separate payment
Maintenance i.e. cleaning and general servicing of the premises
Insurance of the premises against fire, public liability insurance etc.
Management i.e. actual cost of collection of rents, advertising etc.

Legal fees to cover the drawing up of leases or the issue of solicitors
letters to tenants who default on payment of rent
Accountancy fees incurred for the purposes of preparing a rental
income account
Wear and Tear on furniture and fittings i.e. carpets, cookers, central
heating etc.
Interest paid on monies borrowed for the purchase, improvement
or repair the property


*   What is the position with regard to interest paid on borrowings? *
_    Updated by Brendan Burgess:
Since the 2002 budget, any interest paid for the purchase, improvement or repair of the property may be claimed as an expense for tax purposes. This applies from the 2002 tax year, no matter when the property was bought_

*   What expenses can be claimed for Wear and Tear? *
If a premises is let for residential purposes and it is furnished, a claim can
be made for a wear and tear allowance based on the cost of the
furniture and fittings. With effect from 1 January 2001 the allowance is
20% per year over 5 years. Prior to this the allowance was 15% per
year for the first 6 years and 10% in the 7th year. It will be necessary to
supply an itemised list of expenditure incurred each year so that the
allowance can be calculated.

*   What expenses cannot be claimed for? *
_   Pre-letting expenses_ i.e. expenses incurred prior to the date on
which the premises was first let apart from auctioneer’s letting fees,
advertising fees and legal expenses incurred on first lettings
_    Capital expenditure_  incurred on additions, alterations or
improvements to the premises unless allowable under an Incentive
scheme

*   Rent a Room Relief*
From 6 April 2001, where an individual rents a room (or rooms) in a
“qualifying residence” and the gross rent received, including sums
arising for food, laundry or similar goods and services and the income
does not exceed £7,620 (£6,000) (£5,587 (£4,400) for the tax year
2001) this income will be exempt from income tax. Where more than
one individual is entitled to the rent, the limit is divided between the
individuals concerned.
A “qualifying residence” is a residential premises in the State, which is
occupied by an individual as his/her principal private residence during
the year of assessment.
Room rentals coming within the scope of this scheme will not affect the
person’s entitlement to mortgage interest relief or the capital gains tax
exemption on the disposal of a principal private residence.
There is no deduction for expenses made in ascertaining the rental
income received and if the income does not exceed the limit in the year
then those profits/losses are treated as “nil” for the year of assessment.
An individual can elect that this relief does not apply in a year of
assessment by writing to the Inspector of Taxes prior to the return filing
date for the chargeable period.
This income is not liable to either PRSI or the 2% Health Levy but it
must be included on an individuals annual income tax return.

*   How are Premiums on Leases treated for tax
purposes?*
See original document

*   What if a premises is only partly let? *
If, part of a premises is let, only expenses incurred on that part of the
premises are available for set off against rental income.
For example, if rooms are let in a private house and the income received
exceeds the limits of the “Rent a Room” scheme, the expenses for gas,
electricity etc. are shared by all the occupants of the house, expenses
applicable to that part of the house which is let are only available for set
off against profit rent. Expenses should be apportioned based on the
occupancy of the house i.e. the number of rooms occupied by tenants.

*   What if the property is vacant between lettings? *
Normally expenses allowable are those incurred while the premises is
let. However, if the premises is re-decorated or repaired between
lettings this expense will be considered, if the property is only vacant for
a short period.

*   What if a loss is made? *
A loss will arise if total allowable expenses are more than the rents
received. This loss can be set against any other profit rent made by the
landlord or carried forward against future rental profits.
*   How is the tax due on rental income collected? *
Profit rent is taxed on an actual tax year basis. For individuals taxed
under the PAYE system with rental profits that are relatively small it can
be arranged to have the tax collected by reduction of their tax credits
and standard rate cut-off point. Otherwise, the tax due will be collected
under the Self Assessment system. Leaflet IT 10 Guide to Self
Assessment gives full details. This is available from any tax office,
Revenues Forms and Leaflets Service at (01) 865 5002 or on Revenues
Web site at www.revenue.ie.

*   How is profit/loss rent calculated? *
The rental profit or loss is calculated by reducing the gross rents
receivable by the allowable deductions. The rental profit/loss from each
rental property is calculated separately. In the case of multiple tenancies
the total profits from the lettings is reduced by the total losses to arrive at
the net profit or loss.

*   Example Rent account*
A residential premises is first let at an annual rent of 10,000. The
Insurance premium on the premises is 600 p.a. and Ground rent of 200
is payable. The landlord is responsible for the payment of electricity and
central heating which cost 800. It was also necessary to carry out repairs
which cost 1,200. The premises is furnished and the value of the fixtures
and fittings is 5,000. Assessable rents are calculated as follows:
Gross rent 10,000
Less:
Insurance 600
Ground rent 200
Electricity/Heating 800
Repairs 1,200
Wear and Tear
5000 x 20% 1,000 3,800
Profit rent 6,200
The taxable rental income is 6,200.




*   How are non-resident landlords taxed? *
On receipt of the annual tax return profit rent i.e. rent received less
allowable expenses, will be assessed. The landlord is entitled to claim
relief for expenses, which are usually allowed in arriving at the rental
profit. The landlord is also entitled to a credit for the tax deducted by
the tenant. Form R185, should be submitted by the landlord with the
tax return to obtain credit for the tax retained. Tax retained by the
tenant should be taken into account when calculating Preliminary Tax.


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## biggerry (4 Jan 2002)

*Does this apply to Section 23 properties also?*

This is really useful!!.  Thanks Brendan.

Do you know if Insurance, Ground rent, Electricity/Heating, Repairs can be offset for Section 23 properties also?


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## Tommy (4 Jan 2002)

*Re: Does this apply to Section 23 properties also?*

Yes 

The computation of net rental income for a S.23-type property should be exactly the same as that for other properties, except for the obvious matter of how that net income is taxed, under the particular s23, etc incentive.

Tommy
www.mcgibney.com


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