# Tax on Rental Income



## Mahonj (3 Sep 2007)

Hi, I intend to rent my apartment out fully at the end of October. I am hoping to receive €1,400 monthly, this is a lower amount than my monthly mortgage repayments. As a result, do I need to pay any tax on this rental income or is it totally tax free as my mortgage is greater than the income? 

Secondly, am I obliged to register for tax purposes and how do I go about this?

Thanks


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## Guest111 (3 Sep 2007)

You do need to pay tax, not on the interest element of the mortgage but on the capital element.
This is a common mistake which ends up very expensive when you are caught.


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## ClubMan (3 Sep 2007)

See the _Property Investment FAQ _for a brief summary of some of the issues involved. Get professional advice if (as it seems) you are not aware of the details.


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## Bronte (3 Sep 2007)

You don't pay tax on the capital element of the mortgage.  

You take your rental income from which you subtract your running costs plus your mortgage interest payment (not the capital payment) and if you have a surplus you pay tax on that.

Therefore it is not relevant if your rental income is less than your mortgage repayments.


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## ubiquitous (3 Sep 2007)

Bronte said:


> Therefore it is not relevant if your rental income is less than your mortgage repayments.



Don't forget that if you incur a rental loss in a given tax year, that loss can be offset in the same tax year or later tax years against Irish rental profits from this & other sources.


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## Guest112 (3 Sep 2007)

yep and don't forget about Capital Gains Tax either down the road when you come to sell......................................


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## bacchus (3 Sep 2007)

For completness....

When did you buy your appartment? 
Did you have to pay stamp duty ?

....if less than 5 years and you did not have to pay SD, then SD clawback wil also be due when renting.


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## Guest111 (3 Sep 2007)

Bronte said:


> You don't pay tax on the capital element of the mortgage.
> 
> You take your rental income from which you subtract your running costs plus your mortgage interest payment (not the capital payment) and if you have a surplus you pay tax on that.
> 
> Therefore it is not relevant if your rental income is less than your mortgage repayments.


 
So you do pay tax on the capital element of the mortgage.
You have contradicted yourself here...the tax situation makes sense really when you analyse it. The rent is your income. You pay tax on the income less the expenditure, which is the interest. Repaying the capital is directly beneficial to you, hence you pay tax on this portion.
I have no doubt there are hundreds, maybe thousands of landlords out there who think if the rent equals the mortgage there is no tax liability and they will get some shock when the Revenue come calling!


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## Harvester (3 Sep 2007)

Hi folks,

First time poster but long time reader here. I'm very confused about the tax on rental income and need some help.

I purchased my house a year ago, but have only been renting it out for the past 6 months. I paid my stamp duty liability as soon as I started renting it out. I have a fixed mortgage paying both capital and interest. The house is fully rented out and I am generating a gross rental income of circa €1,250 per month. My monthly mortgage payment equates to the same as the gross monthly income. 

The confusion lies in what my taxable income is. As the mortgage interest relief amounts to €8,000 p.a, can I claim this against my mortgage income? If I get the relief i.e.€133 per month, back from my mortgage provider, am I still entitled to knock the mortgage relief against the rental income? What are the allowable expenses that can be put against the rental income to reduce the tax liability?

Maybe I need to speak to an accountant but as first port of call I thought I'd ask your good selves first


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## Guest111 (3 Sep 2007)

As you said yourself you need to speak to a professional...as I see it you should not be claiming "owner occupier" mortgage interest relief which you are. The taxable income is the capital repayment element of your mortgage. In each payment there is interest and capital being paid. The majority is interest in the early years and the proportions change over time as the sum borrowed reduces.


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## ClubMan (3 Sep 2007)

See here:

Property Investment FAQ
Property Investment Forum - Key posts

but get professional advice as well.


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## Trustmeh (3 Sep 2007)

Andy Doof said:


> I have no doubt there are hundreds, maybe thousands of landlords out there who think if the rent equals the mortgage there is no tax liability and they will get some shock when the Revenue come calling!



Right you are! Ignorance does not equate to innocence.  Did you see the news the other day that the revenue is requiring all banks to provide details of interest paid on all accounts. Also going forward all accounts opened will need PPS numbers...The day of reckoning is not far off I think.


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## Bronte (4 Sep 2007)

Andy Doof - You do not pay tax on the repayments of capital to the bank.  You pay tax on the profits (if any) you make from letting your property.  

Harvester - are you confusing the TRS (Tax relief at source) relief that people who live in their own homes get - which nowadays is refunded directly by the bank, with the permission of Revenue.  You should not be getting this if you have rented out your property.


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## Guest111 (4 Sep 2007)

Bronte said:


> Andy Doof - You do not pay tax on the repayments of capital to the bank. You pay tax on the profits (if any) you make from letting your property.
> 
> Harvester - are you confusing the TRS (Tax relief at source) relief that people who live in their own homes get - which nowadays is refunded directly by the bank, with the permission of Revenue. You should not be getting this if you have rented out your property.


 
Yes, for clarity the capital element of the mortgage is not an allowable expense. So in the examples we are discussing where the monthly rent equals the monthly mortgage the investor will be paying tax on a figure equal to the capital element of the mortgage minus any allowable expenses.


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## ubiquitous (4 Sep 2007)

Andy Doof said:


> So in the examples we are discussing where the monthly rent equals the monthly mortgage the investor will be paying tax on a figure equal to the capital element of the mortgage minus any allowable expenses.



For the love of God, why make this complicated?

Put simply:

Capital repayments on a mortgage are irrelevant to the calculation of Rental income for Tax purposes.

Taxable Rental income is calculated on the difference between Rental income received and allowable deductions including interest.


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## Guest111 (4 Sep 2007)

ubiquitous said:


> For the love of God, why make this complicated?
> 
> Put simply:
> 
> ...


 
I think the problem is that people find it too complicated...and too many investors like the OP are getting themselves into trouble. The capital and interest elements of a mortgage repayment have to be highlighted so landlords understand their obligations , how a capital repayment from rental income benefits them and that they should therefore be taxed.
Not sure where the love of God comes in but God love all those landlords when Revenue come knocking!


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## ubiquitous (4 Sep 2007)

Andy Doof said:


> how a capital repayment from rental income benefits them and that they should therefore be taxed.



But landlords are NOT taxed on capital repayments. They are taxed on profit. This particular principle is not complicated.


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## Guest111 (4 Sep 2007)

ubiquitous said:


> But landlords are NOT taxed on capital repayments. They are taxed on profit. This particular principle is not complicated.


 
Absolutely...we are in agreement. All I am saying is that it's the capital element of the mortgage being repaid that causes the issue.
Evidently things are not simple enough given the amount of people who post believing that if your rental income equals the mortgage payment you've no tax to pay.


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## Dreamerb (4 Sep 2007)

ubiquitous said:


> For the love of God, why make this complicated?




Because the sums are _hard_. And if there are lots of numbers in the problem, you have to use them all and then you might get the right answer. 

And a gold star.


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## bacchus (5 Sep 2007)

Andy,
You are approaching the subject from the wrong angle, turning something relatively simple into something that looks like rocket science.

FYI, see this thread - Not that hard to calculate the taxable profit (if any!).


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## webtax (5 Sep 2007)

Harvester,

Once you start renting out your property you are no longer entitled to mortgage interest relief on it (instead you claim your interest expense as a deduction when working out your rental profit). If you are still receiving it at source from your bank you should get them to stop it asap. The relief you have received in error will obviously have to be repaid to the revenue commissioners.

Just a note on claiming interest as an expense: your mortgage provider should provide you with an annual interest statement giving you the figure you can claim.  Also, you have to register with the prtb to claim the interest as an expense: www.prtb.ie

If you are unfamiliar with what expenses you can claim and how capital allowances work etc. you should get an accountant to prepare your return so you claim all the expenses you are entitled to and are in full compliance with your obligations.


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