# I used to see landlords in a different light - not so now



## RMCF (12 Jan 2011)

As someone who is on the verge of renting out a property, I have really changed my mind on landlords and their incomes.

I used to think most were loaded, getting folk to pay their mortgage for them, and getting a 'free' property if they got it rented without gaps. A great money making scheme.

I am moving to a new house and it looks like I will have to rent out my current house as there are no buyers at present.

I now see comments from tenants such as "I'm paying that guys mortgage" in a new light. I will be getting slightly less each month than my actual mortgage repayment, but I accept this to get it rented. However, it looks like I will have to pay Revenue approx 50% of my rental income in tax each and every year (41% + 4% PRSI + 7% USC?). Then add to this costs such as NPPR tax, PRTB registration, increased landlord insurance, upkeep of 2nd house, future property and water rates?, accountant fees etc.

Ok so some of these are tax deductible, but being a 1st time landlord is a costly business.


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## Ravima (12 Jan 2011)

theres none so blind as them that cannot see


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## Bronte (13 Jan 2011)

Thanks for that RMCF.  But be warned the worst thing is not the costs.  It's the fear of the bad tenant .  Getting a good tenant is the key to being a successful landlord and giving good decent accommodation at a reasonable price and looking after your tenant's well will go a long way to that, but you need to be tough too.  You might let us know how you get on.


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## T McGibney (13 Jan 2011)

RMCF said:


> However, it looks like I will have to pay Revenue approx 50% of my rental income in tax each and every year (41% + 4% PRSI + 7% USC?). Then add to this costs such as NPPR tax, PRTB registration, increased landlord insurance, upkeep of 2nd house, future property and water rates?, accountant fees etc.



In general your comments are well put, but in the interests of balance, I think its worth noting that the circa 50% tax hit on rental income applies only to the residual profit element after deduction of allowable costs and capital allowances, and not to the entire income received. 

In the current environment, most first-time landlords will struggle to make any sort of decent profit, and as such they shouldn't have much of a tax bill if they organise themselves properly and claim all their deductions etc entitlements.


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## Jetblue (13 Jan 2011)

I am considering offering what was previously my principal private residence for rent.(Moving in with grilfriend).
I hope to rent out my house through a management company for €550 per month. Mortgage is €650 per month, I know I'll have to pay the management people a fee and register with Prtb etc etc as per RMCF's opening post BUT do I need an accountant?

Can someone explain how I have to pay tax on making a loss? What allowences I can claim etc. How do I claim them?
I have only ever rented under the rent a room scheme before and am not a business person.
JB


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## T McGibney (13 Jan 2011)

It's totally up to you whether or not you hire an accountant. If you don't want to do so, you can perhaps follow Revenue's instructions here and also take a look at the Revenue [broken link removed] online and decide whether you can manage this yourself.

Not all of your expenditure as a landlord will be tax-deductible against rents, for example the capital element of mortgage repayments and 25% of your mortgage interest costs. This may result in you having a taxable 'profit' even when your rents do not cover your costs.


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## RMCF (13 Jan 2011)

T McGibney said:


> In general your comments are well put, but in the interests of balance, I think its worth noting that the circa 50% tax hit on rental income applies only to the residual profit element after deduction of allowable costs and capital allowances, and not to the entire income received.
> 
> In the current environment, most first-time landlords will struggle to make any sort of decent profit, and as such they shouldn't have much of a tax bill if they organise themselves properly and claim all their deductions etc entitlements.



@ Bronte first off, well it looks like I have secured a decent tenant. I know got to know them over the last year or so, and they are moving to me from another landlord because I am saving them a few Euro each month. They seem very genuine people and are pushing me for a longer lease than the initial 1yr I want. I guess many landlords would be more than happy with someone like this, but since this is my 1st time renting, I want to 'suck it and see' for the 1st year and decide if I want to continue renting or get back to trying to sell the property.

T McGibney, fair enough I do appreciate that I have plenty of options to offset costs against the tax I have to pay, but my tenant really doesn't need much except for kitchen white goods and a few beds. From what I know claiming maybe 2 beds, plus a cooker, washing machine, fridge freezer and dryer will only get me a small amount each yr for 8 yrs - thats no great amount to give me relief. Plus each year I have the prospect of costly landlord insurance, NPPR tax (which may well rise), a potential for a property tax/rates in the future, communal grass cutting/upkeep, etc.

Now as you can guess I am no expert on this but the way I am guessing I would say that if I get €500 each month (6k annually) I would have to be prepared to be paying €2,500 to €3,000 each yr back to Revenue? Would this be too much do you think? Thats what sort of figure I'm working to, and the reason for the thread in the 1st place. I can't see it as 'making a profit' unless you had a property that was mortgage free.


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## Greta (13 Jan 2011)

RMCF said:


> Now as you can guess I am no expert on this but the way I am guessing I would say that if I get €500 each month (6k annually) I would have to be prepared to be paying €2,500 to €3,000 each yr back to Revenue? Would this be too much do you think? Thats what sort of figure I'm working to, and the reason for the thread in the 1st place. I can't see it as 'making a profit' unless you had a property that was mortgage free.



This amount of tax is WAY too high UNLESS your property is mortgage free or the government abolishes interest relief. While it MAY happen in the future, at the moment 75% of your interest cost is deductible against tax. Which I presume will leave you with very little taxable profit, if any.

Annual insurance, management fees, grass cutting, repairs etc are all deductible against tax (with the exception of NPPR charge).


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## RMCF (14 Jan 2011)

As I said, I'm no expert !!

So perhaps I am judging it all wrong then? From reading forums I have seen posts that said about being taxed at 41%, others pointed out not to forget the 4% PRSI and now 7% social charge.

I did visit an accountant last yr for a general chat, and got round to chatting about renting, and I am nearly sure that they said I would need to put aside about €2k each yr for paying back to Revenue. Maybe I misheard them.

Perhaps I could give you some figures and see if you can guesstimate the amount of money I might own Revenue from my rental income.

I'll keep the figures rounded for simplicity.

Rental income €500 per month, €6k annually.
Our tax rate - 41%
My mortgage interest repayments - €375 per quarter, €1125 annually.

So is €845 of that €1125 not included in what I have to pay back? Or it that wrong too?


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## AlbacoreA (14 Jan 2011)

The main problem is when a tenant stops paying the rent, and the new  LL discover's theres no legal way to get a bad tenant out of the house. Basically the law is all on the side of the tenant. When the LL do finally get a bad tenant out, there is no way of getting arrears or damages out of them. So its critical the LL gets a good tenant. A bad one could potentially financially ruin a LL.


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## Greta (14 Jan 2011)

RMCF said:


> Rental income €500 per month, €6k annually.
> Our tax rate - 41%
> My mortgage interest repayments - €375 per quarter, €1125 annually.
> 
> So is €845 of that €1125 not included in what I have to pay back? Or it that wrong too?



You don't pay tax on these €845, you deduct it from the total rent of €6k to arrive at your taxable income. You then calculate tax on this taxable income. 

However, in addition to 75% of the interest, you can also deduct other expenses - letting agent's fees (if you use one), management fees (if you pay any), property insurance and any repairs and maintenance, of which there will very likely be some every year. And also wear and tear, even though this deduction will not be large in your case. This will further reduce your taxable income.

So all in all you won't pay half your rental income as tax, due to these deductions the figure will be lower. But, considering the fact that your interest cost is rather low, your accountant is probably right, the figure around €2K is probably realistic. However, it will be around 1/3 of your gross rental income, not 1/2, so things aren't quite so bad


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## Greta (14 Jan 2011)

AlbacoreA said:


> The main problem is when a tenant stops paying the rent, and the new  LL discover's theres no legal way to get a bad tenant out of the house. Basically the law is all on the side of the tenant. When the LL do finally get a bad tenant out, there is no way of getting arrears or damages out of them. So its critical the LL gets a good tenant. A bad one could potentially financially ruin a LL.



I totally agree. I would suggest getting landlord's insurance, if possible (its cost is also tax deductible), that will pay OP the rent for a while if his tenant fails to, giving him time to go through the lengthy eviction process without facing financial ruin.

I am no sure how easily available such policies are in Ireland, I have one in Britain and it does provide some peace of mind. But I don't have one in Ireland.


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## RMCF (14 Jan 2011)

Greta

Thanks very much for your time and effort in replying.

It has eased my mind a little, and every little helps. 

I think I will arrange another appt with an accoutant and run a few numbers by them.

And I suppose one positive is that if I rent now in Feb 2011, I do not have to pay Revenue anything until well into 2012, so I can budget for it.

By the way, I know a few people who rent out houses for cash, and Revenue know nowt about this. This would be lucrative, but its way too risky for my blood. I like things above board.


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## Bronte (14 Jan 2011)

6000 rent less

845 75% interest
90 PRTB
Rates/water
Depreciation 12.5 %
Advertising
Gardening
Repairs
house insurance
life insurance (as long as it's term insurance)

The NPPR is not allowable, but we are all hoping revenue will change their minds on this the same as they did (after many years) for the life insurance

You shouldn't need an accountant as it's very simple in your case, you're only adding to your costs, unless you feel you can't manage it yourself. Those fees are in any case deductable. 

One question, your rent is only 115 a week. Is it a one bed appartment?


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## T McGibney (14 Jan 2011)

Bronte said:


> You shouldn't need an accountant as it's very simple in your case, you're only adding to your costs, unless you feel you can't manage it yourself. Those fees are in any case deductable.



Unless the OP has a good understanding of the tax system and the dynamics of how the various deductions and allowances affect their bottom-line liability, I would suggest that they probably do need some level of professional advice. The cost of such advice, after the tax deduction, should be minor.



RMCF said:


> Greta
> By the way, I know a few people who rent out houses for cash, and  Revenue know nowt about this. This would be lucrative,



Lucrative in the short-term, perhaps yes, but in the long-term? Definitely not!


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## rcrm (14 Jan 2011)

Hi there,
I'm equally as boggled by the whole taxation issue for a rental property. I have a house that I bought before I met and married my husband and we built a house etc., and I've been renting the original house since January 2010 because the market just isn't there to sell it. I'm fully declared with PRTB and pay the NPPR etc. and have absolutely no wish to defraud anyone or the state. Nor do I want to treat my tenants badly or become a slumlord. I know I have to make a tax return on the property by October 2011 but I cannot work out what the tax will be. I've looked at ITFORM 70 on the Revenue website and whike I can follow most of it I just cannot get the whole tax on the interest part of the mortgage etc. Can anyone please tell me hoe I find out how much of my mortgage is interest? I know it's pathetic that I can't work this out myself, but I'm not so clueless on other issues.

My mortgage is 700 per month and the tenants pay 600. I have all the other costs like insurance, NPPR, grass cutting, bin charges etc to offset and I can follow that part of the calaculation. I just can't get my head around the mortgage/rental income bit. I'd be really grateful for any direction on this from those of you who see it clearly. 
Thank you in advance for5 any advice,
RCRM


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## Greta (15 Jan 2011)

RCRM, you can find out how much of your mortgage payment for last year was interest from your *annual mortgage statement*, hope your bank provides in on calendar year = tax year basis. 

If not, if by any chance your bank issues statements from September to September, say, then you'll have to ask them to provide you with the interest figure for 2010.

You could estimate the amount of interest yourself by applying the interest rate you were being charged last year to the amount of the mortgage. But as interest rate might have changed during the year and in any case interest is usually charged daily or monthly, it's hard to calculate the interest figure exactly, so you need to get it from the annual mortgage statement or the bank.

Then take 75% of that figure as your deductible expense.


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## DonKing (16 Jan 2011)

Bronte said:


> 6000 rent less
> 
> 200 NPPR
> 
> ...


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## mrso'brien (18 Jan 2011)

Bronte, the way you wrote that list is really informative, thank you.

I have just come off the phone to revenue and I am even more confused than when i rang them.

Could I just ask a question of your list Bronte please?

You say 6000
minus
845
90 PTRB
etc.
etc.
etc.

So, if you deduct the 845 from the 6000, that leaves you with 5155. Can you then just deduct the 90 Euro for the PTRB directly from this...so you get 5065? Or should it also be a percentage of the 90Euro (like the way it's a percentage of the mortgage interest relief of 75%)????

So, for example...say my expenses were:-
845 interest (that being 75% of the amount of interest I pay)
90 PTRB
1000 management fees which includes cleaning, house insurance, bins
50 advertising
200 depreciation
________
 = Total of 2125

Does this mean I would deduct 2125 from the 6000 rental income??

As in, are the PTRB, management fees, advertising, depreciation 100% deductable???

Thanks in advance!!!!!

P.S. Revenue told me that if you are PAYE you can just send the form back with your P60 to them instead of registering yourself as self-employed if you are renting out a house.


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## Bronte (18 Jan 2011)

The 90 Euro is fully deductable.  The only thing that is different is the mortgage interest at 75% and the wear and tear.  

You cannot deduct your own labour, so if you cleaned the property that's not deductable.  

__________________________

DonKing you are so right about the NPPR, I forgot about that as I was listing some of the common expenses.  I'll modify my list.


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## mrso'brien (18 Jan 2011)

Thank you very much Bronte. You have saved me a lot of hassle and confusion with that list. I hadn't a clue about the deductions/reliefs.

Thanks also to everyone else who posted on this thread too...it's a pity Revenue wouldn't make it as clear as you have made it.


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## T McGibney (18 Jan 2011)

DonKing said:


> Bronte, The NPPR €200 is not deductable against rental income.



Note that Revenue have never actually confirmed this position publicly (although the  has quoted a Revenue 'indication' to this effect). Until and unless they do, there remains some doubt as to whether the charge should be deductible.


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## T McGibney (18 Jan 2011)

mrso'brien said:


> P.S. Revenue told me that if you are PAYE you can just send the form back with your P60 to them instead of registering yourself as self-employed if you are renting out a house.



In my experience, Revenue normally insist that the taxpayer registers for self-assessment in respect of rental income.


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## Bronte (18 Jan 2011)

mrso'brien said:


> . You have saved me a lot of hassle and confusion with that list. I hadn't a clue about the deductions/reliefs.
> 
> .


 
I'm not an accountant so be careful this is just a web forum.  In any case to you and others who don't know how to do accounts you will save yourself money in the long run if you hire an accountant for the first year at least.  And this is also tax deductable.  Getting it wrong can cost you.


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## RMCF (18 Jan 2011)

DonKing said:


> Bronte said:
> 
> 
> > 6000 rent less
> ...


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## RMCF (18 Jan 2011)

Bronte said:


> 6000 rent less
> 
> 845 75% interest
> 90 PRTB
> ...



No, its a 3 bed semi. But the approx figure I have given is the going rate around here. We aren't in Dublin !!

Thanks for the list above - its most helpful knowing what you can and can't claim for. Is this the total list?

Also, re: house/life insurance, is the full amount that you pay for insurance tax deductible? And that depreciation figure, is that a guide or is the 12.5% a set figure that everyone gets?


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## RMCF (18 Jan 2011)

btw, I think I will hire an accountant for the 1st year at least.

I was quoted around €200 - €250 for the service. I think thats not bad if they do it properly and perhaps save me the hassle from Revenue should I be audited.


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## RMCF (19 Jan 2011)

Couple of extra questions:

1) Pre-letting expenses not allowed?

- If true, does this mean that if I buy stuff now for the house to furnish it or provide white goods, or paint it, can I not claim for this? After all, I am getting the property ready for a tenancy, so this should be deductible. Right?

2) Paying this 41%.

- I have it in my head that because we as a couple are in the 41% tax band, that the entire rental income, of say €6000, is subject to tax at 41%. Is this true? I read that its 41% of the profit, not the rental income? Could someone give a simple guide as to what the 41% is of, because I have it in my head that we have to pay 41% on the €6k (minus expenses of course). Perhaps I'm wrong.


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## T McGibney (19 Jan 2011)

RMCF said:


> 2) Paying this 41%.
> 
> - I have it in my head that because we as a couple are in the 41% tax band, that the entire rental income, of say €6000, is subject to tax at 41%. Is this true? I read that its 41% of the profit, not the rental income? Could someone give a simple guide as to what the 41% is of, because I have it in my head that we have to pay 41% on the €6k (minus expenses of course). Perhaps I'm wrong.



Apologies for asking but is this some sort of windup? 

You previously mentioned this in your opening post on this thread and I replied as follows:



T McGibney said:


> In general your comments are well put, but in  the interests of balance, I think its worth noting that the circa 50%  tax hit on rental income applies only to the residual profit element  after deduction of allowable costs and capital allowances, and not to  the entire income received.
> 
> In the current environment, most first-time landlords will struggle to  make any sort of decent profit, and as such they shouldn't have much of a  tax bill if they organise themselves properly and claim all their  deductions etc entitlements.


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## RMCF (19 Jan 2011)

Apologies, no its not meant as a windup.

My original post was a while back and I have heard and read so much info in the meantime that I have got slightly confused. Plus I was involved in a few PMs which added to my confusion. I did say that I am not so clued in on all this, so I appreciate your patience with any questions I ask.

You say that I would struggle to make any profit. But surely its not profit that you are taxed on, but your income you receive from renting. I understand that I can take off deductions but I will still end up with maybe €3.5k - €4k out of €6k that I will be liable to be taxed on, so surely to say I won't have much of a tax bill is slightly generous.


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## T McGibney (19 Jan 2011)

RMCF said:


> But surely its not profit that you are taxed on, but your income you receive from renting.



Sorry, and I don't really know how to say this, but why is it not logical to assume that you would be taxed on your profit? 

In general terms, businesses are taxed on their profits, not their turnover.


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## T McGibney (19 Jan 2011)

RMCF said:


> I understand that I can take off deductions but I will still end up with maybe €3.5k - €4k out of €6k that I will be liable to be taxed on, so surely to say I won't have much of a tax bill is slightly generous.



Every case is different and depending on your own circumstances, you might end up with a higher liability than the average person in a similar position. That said, the only way to properly minimise your liabililty is to ensure that you claim all legitimate deductions. If you're not sure what these are, or not certain as to how the system works, the obvious route at that point is to get professional advice on minimising your liability.


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## Bronte (19 Jan 2011)

RMCF said:


> 1) Pre-letting expenses not allowed?
> 
> - If true, does this mean that if I buy stuff now for the house to furnish it or provide white goods, or paint it, can I not claim for this? .


 
The furniture and fittings you buy will be allowed at 12.5%. The painting will not as it's a first letting and considered a pre letting expense. If you paint it a week after the tenant moves in then it is allowable. You need to look at revenue.ie for clarification on this. Some preletting expenses are allowed. Some are not. From memory, for preletting expenses allowed it's advertising and legal costs for drawing up a lease. But as I said look up the websites which clarify this. 

If you renovated now this wouldn't be allowed, instead this capital expenditure would be allowed against capital gains when you sell. But best to forget about that now and concentrate on income tax.

In relation to profits. If your profit after expenses is 3.5K then you are to pay 41% of that in tax. This comes from your rent. 

Have a look at Irishlandlord.ie and AAM under investment property so that you get a better grasp of what you can claim for.You have to understand that being a landlord is a business.  As previous poster said the rent is your turnover but you're not taxed on this, you are taxed on your rent minus deductions to get your profit.  Unlike other landlords starting out you are paying tax immediately due to the fact that your mortgage is low and the fact that rent is not your ownly income. If you decide that the returns on the property are not worth it then you may have to sell the property.


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## RMCF (19 Jan 2011)

T McGibney said:


> Sorry, and I don't really know how to say this, but why is it not logical to assume that you would be taxed on your profit?
> 
> In general terms, businesses are taxed on their profits, not their turnover.



Again thanks for your replies.

Needless to say I will be getting professional advice. At least for Yr1 anyway. Its just all too confusing, and I don't want to get it wrong.

I hear what you are saying about being taxed on profits, but when reading up on rental income, I have often been told that all rental income is subject to tax, minus acceptable deductions of course. I guess this is basically taxing my profit I guess !

Thanks again.


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## RMCF (19 Jan 2011)

As I have most questions answered (for now), I would like to thank all those who replied to my questions on this thread, especially Bronte and T McGibney.

This site shows all that is good on internet forums. Plenty of valuable advice which is delivered quickly and free of charge. Thanks for taking the time and effort.


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## oldnick (19 Jan 2011)

You should put NPPR as a cost  as I do.

I have received nor found (after much searching) any information from Revenue that it is not an allowable cost. Indeed, on the Revenue website  there is  a downloadable leaflet on rental income and one of the allowable costs is "Rates,levies or similar"..

Yes, I know there's an unofficial website that claim they asked Revenue who "indicated" it was not allowable because it wasn't specifically mentioned  in the relevent leigislation covering allowable costs (but that legislation was written before NPPR was introduced !) 

So, what's the worst that can happen if you put it down as a cost ?
 Assuming Revenue actually checks your accounts you can quite justifibly argue that as far as Revenue's leaflet is concerned it indicates that it is allowable . All they can do is disallow it -they won't hang anyone !


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