# Can I deduct  for taxation purposes rent I pay for a property from income through subletting it?



## Benjamin Connor (8 Aug 2015)

As I was travelling a lot in the past year, I occasionally sublet my apartment (which I myself am a tenant of) to people via Airbnb. I did this under the assumption the income would fall under the 'rent a room' relief, however it was recently clarified that this is not the case. 

Since this activity is now considered a actual business, I will have to pay taxes minus relevant costs. As I thought myself safe under the rent a room relief, I did however not keep any receipts for most of the cost incurred for guest stays. 

I was therefore wondering if I could maybe deduct the rent I pay myself for the property. I mean - if my subletting is considered a business, then the rent I pay is vital for me to run the business, hence I should be able to deduct that cost from the income? 

What do you think? Any advice on this?


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## Gordon Gekko (9 Aug 2015)

Yes - You can deduct the cost of the rent.


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## Andarma (11 Aug 2015)

I presume you can only deduct the cost of rent for the days that the property is actually sublet, ie if you sublet it for 5 days  per month then you deduct the cost of 5 days rent, rather than deducting the entire rent for the month? Would the same apply to mortgage interest costs in the case of property owners?


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## Benjamin Connor (12 Aug 2015)

That's an interesting question. As far as I understood, the obligation is to report the total revenue and total cost in a given year. I assumed that means you could subtract the entire rent from the subletting income. Can anyone comment on this?


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## Joe_90 (12 Aug 2015)

I think Revenue will have to come out with some guidance on this.

If I live in my house full time I get not tax relief at all.

If I rent out a room in my house on a long term basis how much of the loan interest should I be allowed to deduct (Assuming rent a room relief did not exist for a minute).  Is it 1/3 as myself and by wife live here anyway so the amount for the lodger is 1/3 of the people living here?

Is it 1/3 x 5/7 as the lodger does not stay at weekends?

If we let a room through Airbnb again is it 1/3 or is it 1/3 x no of nights there is someone stating here /365?

Does the fact that I'm using my house as a B&B compromise the PPR exemption so the more interest I claim the more of PPR I forego.


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## Gordon Gekko (12 Aug 2015)

I would deduct the whole lot for the year on a square footage basis.


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## Bronte (12 Aug 2015)

Joe 90 from my radio listening the fact it's now a business has CGT implications for the PPR exemption.  Some kind of percentage.  As you said revenue need to clarify.

Logically one should be allowed to deduct the following:
Heating
Electricity
Water
Advertising
Washing machine use
Dryer costs

But the biggest cost to Air B &B is one's own labour in the changing of the beds, the laundry, having to deal with bookings, being there to great people, making breakdfast - normally for a landlord one's own labour is not allowed - but there is quite a lot of work in Air B&B and I should know as I worked in a guesthouse and it was non stop morning till night in July/August etc.

If the cost of one's own labour is not deductable I'd imagine, especially for top rated taxpayers, this business might not make any sense for the paltry return one looks likely to receive.


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## Mrs Vimes (12 Aug 2015)

Of course the cost of one's labour is not deductible, the money one receives for one's labour is *wages *which are also subject to income tax. It makes no sense at all to deduct eg an hourly rate from rental profit, case V and then declare the same amount under case I or IV.

In fact, until prsi on rental income was recently introduced for non-chargeable persons people saved by not having to declare part of their rental income as earned "labour" income.

The money one makes from Air bnb is the same as any other "extra" source of income, often not worth your while if you are paying the higher rate of tax.


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## Gordon Gekko (12 Aug 2015)

Folks

This Airbnb stuff is utter nonsense on Revenue's part.

If it's below €12k pa, it's "rent-a-room" in my view.

I would happily appeal any assessment issued on foot of Revenue's position and go before and Appeal Commissioner.


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## Mrs Vimes (12 Aug 2015)

It seems Revenue are treating Airbnb the same as any traditional B&B.

I'm not terribly familiar with the set-up, but is there a reason it should be treated any differently?


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## T McGibney (12 Aug 2015)

Joe_90 said:


> Does the fact that I'm using my house as a B&B compromise the PPR exemption so the more interest I claim the more of PPR I forego.



In theory it may. In practice, the percentage in any given scenario will be minuscule unless the householder makes a bonanza from AirBnB.

Even then the legalities under which AirBnB arrangements operate may well mean that there is no effect of the PPR exemption if the householder occupies the property concurrently.



Gordon Gekko said:


> Folks
> 
> This Airbnb stuff is utter nonsense on Revenue's part.
> 
> ...



You would lose. The original rent-a-room legislation clearly refers to residential accommodation and the contemporaneous expert commentary on it (Judge Irish Income Tax 2001) unequivocally rules out its application to short-term holiday or other casual lettings.


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## Sophrosyne (12 Aug 2015)

Revenue has issued this eBrief

“In addition to the amendments relating to the increase in the income limit, this eBrief also confirms, in paragraphs 1 and 4.3 respectively, that the relief can apply in the case of lettings to students, but not in the case of guest accommodation, including where such accommodation is provided through online accommodation booking sites.”


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## Gordon Gekko (12 Aug 2015)

T McGibney said:


> In theory it may. In practice, the percentage in any given scenario will be minuscule unless the householder makes a bonanza from AirBnB.
> 
> Even then the legalities under which AirBnB arrangements operate may well mean that there is no effect of the PPR exemption if the householder occupies the property concurrently.
> 
> ...



No I wouldn't. I believe your analysis is flawed. 

Revenue's argument appears to have two legs to it:

- The duration of the stay

- The fact that it might be Case I

Section 216A makes no reference at all to duration, so that argument is spurious. And if one considers the badges of trade in the context of ad hoc Airbnb rentals, I would not like to have to argue that a B&B trade exists.

Interestingly, Airbnb have published their advice from EY on the subject. In their view, "Rent-a-Room" applies (subject to the usual rules).


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## Bronte (12 Aug 2015)

I think it sound more like trading income, as in the same as a B&B or guesthouse.  It's totally different to having a lodger in your home under the rent a room scheme. 

For Air B&B (which has B&B in the title) it's temporary, you are not resident in the property, you can't use the kitchen etc. 

Rent a room is generally to workers or students.  They keep their stuff in a room when they go away for weekends or home (students) it's more a lease, they use the kitchen, are part of the household.


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## Bronte (12 Aug 2015)

Mrs Vimes said:


> Of course the cost of one's labour is not deductible, the money one receives for one's labour is *wages *which are also subject to income tax. It makes no sense at all to deduct eg an hourly rate from rental profit, case V and then declare the same amount under case I or IV.
> 
> In fact, until prsi on rental income was recently introduced for non-chargeable persons people saved by not having to declare part of their rental income as earned "labour" income.
> 
> , *often not worth your while if you are paying the higher rate of tax*.


 
That's my thinking on it too, particularly because it can be labour intensive.  I guess the 'profit' is one's wages.  So you have to weigh up if renting a room for a night or 25 Euro, losing say 10 in tax, with 5 Euro costs, is worth 10 Euro for washing, cleaning, greeting and making beds.


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## T McGibney (12 Aug 2015)

Gordon Gekko said:


> No I wouldn't. I believe your analysis is flawed.
> 
> Revenue's argument appears to have two legs to it:
> 
> ...



Revenue's own [broken link removed] say this:

"Income from guest accommodation such as a bed and breakfast or a guesthouse operation is generally treated as trading income (Case 1) and not rental income (Case V). This type of income, even where it is under the relevant limit, does not qualify for rent-a-room relief"


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## T McGibney (12 Aug 2015)

Bronte said:


> That's my thinking on it too, particularly because it can be labour intensive.  I guess the 'profit' is one's wages.  So you have to weigh up if renting a room for a night or 25 Euro, losing say 10 in tax, with 5 Euro costs, is worth 10 Euro for washing, cleaning, greeting and making beds.



Except you wouldn't be paying 10 in tax, if you are making any sort of reasonable deduction for direct and indirect costs.

Here's my blog post on it. http://mcgibney.ie/2015/08/11/dont-lose-sleep-over-airbnb-tax-returns/


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## Gordon Gekko (12 Aug 2015)

T McGibney said:


> Revenue's own [broken link removed] say this:
> 
> "Income from guest accommodation such as a bed and breakfast or a guesthouse operation is generally treated as trading income (Case 1) and not rental income (Case V). This type of income, even where it is under the relevant limit, does not qualify for rent-a-room relief"



Hi Terry

Sorry to be blunt, but so what? That is merely their biased interpretation. As you know, it's all about the legislation. My view has always been that Section 216A relief applies. EY's view is that it applies. The retired Principal Officer who spoke on Newstalk yesterday did not support Revenue's view.

Regards

GG


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## Joe_90 (12 Aug 2015)

My view is that these Airbnb don't fall into Case V and therefore don't qualify for section 216A.

I understand the rational for S216A but I can't see why someone who buys a house to generate rental income of €10,000 pa gets an exemption while they live in it.  Why not just subject the income to tax and give them a interest deduction.


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## Gordon Gekko (12 Aug 2015)

Joe_90 said:


> My view is that these Airbnb don't fall into Case V and therefore don't qualify for section 216A.



Do you think it's Case I (i.e. some form of hotel-keeping trade)?

If someone has a five bedroom house, with four bedrooms pretty much constantly let out through Airbnb and it's their principal activity, perhaps.

But looking at the Badges of Trade (e.g. Motive, etc), it is difficult to see how one could argue that a homeowner who uses Airbnb to let out a spare room in his/her home could be deemed to be carrying on a trade. That has passive rental income written all over it in my view, especially if the owner has another entirely unrelated job.

If I have a spare room in my house, and I let it out for 6 months to a student or I let it out for 6 days to a seconded worker, what is the difference? Section 216A makes no reference to duration.


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## Sophrosyne (12 Aug 2015)

I'm wondering whether there is a landlord tenant relationship.

For instance I notice that Airbnb set certain standards and also provide a "Host Guarantee":-

“Although you're unlikely to experience any issues with property damage on Airbnb, we understand that you may need protection. The Host Guarantee will reimburse you for up to €800,000 in damage to your eligible property. It's the latest example of Airbnb's commitment to helping create a safe and trusted community around the world.”

It would be unusual in a landlord tenant situation for an unconnected party to provide compensation for damages to a landlord.

Does a lease exist between the person who hosts and the person who stays in the property?


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## Jon Snow (13 Aug 2015)

Gordon Gekko said:


> Do you think it's Case I (i.e. some form of hotel-keeping trade)?
> 
> If someone has a five bedroom house, with four bedrooms pretty much constantly let out through Airbnb and it's their principal activity, perhaps.
> 
> ...



Looking at the badges of trade, I don't see how you can argue it out of Case I, but there you go, doctors differ..!


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## Gordon Gekko (13 Aug 2015)

Jon Snow said:


> Looking at the badges of trade, I don't see how you can argue it out of Case I, but there you go, doctors differ..!



True. If I was an Appeal Commissioner, I'd be focussing on the motive test. Front page of the Irish Times business section today.


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## Bronte (13 Aug 2015)

Gordon Gekko said:


> If I have a spare room in my house, and I let it out for 6 months to a student or I let it out for 6 days to a seconded worker, what is the difference? Section 216A makes no reference to duration.


 
But that's completely different.  The student is living there.  The seconded worker is staying there for a temporary period of 6 days, he could just as likely be in a B&B, an hotel, a guesthouse.


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## Gerard123 (13 Aug 2015)

Isn't Air BnB simply a means of securing a tenant/lodger/use whatever word is most suitable.  In that regard I see no difference between it, advertising in a newspaper for someone, advertising on daft.ie, or any of the other forms of media.

To say that simply through the use of Air bnb implies that no tax payable simply through using Air bnb I find frankly ridiculous.  There's a need to look at the facts of the situation. eg

1  Using Air bnb to secure a student - tax law seems to say this is not taxable subject to certain conditions.  Student tax initiative.
2  Using Air bnb to sure someone who uses the room as their residence - again seems to qualify with conditions.  Same would apply if they secured the room through a newspaper or daft.ie.  The means by which a person was secured is not relevant.
3  Using Air bnb, newspaper, daft.ie, or other, to obtain people to stay for a short term, eg two weeks holidays, a few weeks working in Ireland - this was never intended to qualify under the rent a room legislation.

The rent a room relief was brought in to help with increasing the supply of rooms for residential purposes. To suggest that using Air bnb to get a whole series of many different people for short term stays equates with what the rent a room scheme was intended for is simply wrong.  The Air BnB has like many other debates has got confused and is being over simplified in the media, as a one size fits all argument.  It was never appropriate for people to assume that all rents on the Air BnB qualified under the rent a room, no matter what the facts were.  (What makes Air bnb a little different is that fact that the income under it is more visible and is easier to prove).

Though I think the Revenue should have been much clearer and much quicker in telling people this, Revenue were very slow/late in clarifying things.  For this reason, if people hold their hands up, communicate the income, then no way should there be interest or penalties, would be unfair, the Revenue should come out and clearly state this to reduce any fear people may have.  Also for fairness people could be given the opportunity to make related tax payments over a period of time, say the same length of time as that in which the income arose in the first place perhaps, to allow them manage their affairs.

As an aside, any related incremental expenses should be allowed as a deduction, food, heat and light, etc.  Don't think mortgage interest should be allowed as the house wasn't bought with the intention of generating rent (not wholly and exclusively).  If it was then the rental is most definitely a trade, subject to all taxes that apply to landlords, no question in my mind on this.

Another initiative related to property that as a country we can't/didn't get right!!    Hilarious if it wasn't so serious!!


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## Gordon Gekko (13 Aug 2015)

Bronte said:


> But that's completely different.  The student is living there.  The seconded worker is staying there for a temporary period of 6 days, he could just as likely be in a B&B, an hotel, a guesthouse.



But the legislation does not have any conditions regarding duration of stay. I would contend that renting a room in someone's home for 3 days, 3 weeks, or 3 months are the same for the purposes of the legislation.

I agree with the above poster though - Clearly not all Airbnb lettings qualify for "rent-a-room". But if a person's starting point is "I'm going to use Airbnb as a more efficient and more profitable way to secure a 'lodger'", I don't see how the "Motive" Badge of Trade can be "failed".


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## T McGibney (13 Aug 2015)

Gerard123 said:


> Don't think mortgage interest should be allowed as the house wasn't bought with the intention of generating rent (not wholly and exclusively).



How should the original intention on acquisition be relevant? Either the cost applies to the taxable activity or it doesn't. End of.


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## Joe_90 (13 Aug 2015)

Gordon Gekko said:


> But the legislation does not have any conditions regarding duration of stay. I would contend that renting a room in someone's home for 3 days, 3 weeks, or 3 months are the same for the purposes of the legislation.



I agree that the legislation does not have conditions regarding duration.

But there is a difference between getting a tenant for 12 months and a series of people who stay for 1-7 nights.

It's not clear at all which is demonstrated by the differing views on here but if you have say 10 different people staying in your house over a period of time it's looking like a trade!  Not withstanding the fact that it was not the motive of the house owner when they bought the house.


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## Gordon Gekko (13 Aug 2015)

Joe_90 said:


> I agree that the legislation does not have conditions regarding duration.
> 
> But there is a difference between getting a tenant for 12 months and a series of people who stay for 1-7 nights.
> 
> It's not clear at all which is demonstrated by the differing views on here but if you have say 10 different people staying in your house over a period of time it's looking like a trade!  Not withstanding the fact that it was not the motive of the house owner when they bought the house.



Why is it different?

The starting point is "I have a spare room and wouldn't mind having someone share my house with me if it means an extra few quid".

In those circumstances, from a Section 216A perspective, one tenant for 12 months or 52 tenants for one week each should be treated exactly the same.


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## Joe_90 (13 Aug 2015)

Gordon Gekko said:


> In those circumstances, from a Section 216A perspective, one tenant for 12 months or 52 tenants for one week each should be treated exactly the same.



In my view 52 guests using your guest accommodation is a trade and therefore section 216A does not apply!


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## Gordon Gekko (13 Aug 2015)

Joe_90 said:


> In my view 52 guests using your guest accommodation is a trade and therefore section 216A does not apply!



Why? You can't look at a single Badge of Trade (e.g. Frequency) in isolation. The typical scenario as outlined in my above post only differs from a long term rental in terms of duration. But it's an interesting discussion.


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## Gerard123 (13 Aug 2015)

m





T McGibney said:


> How should the original intention on acquisition be relevant? Either the cost applies to the taxable activity or it doesn't. End of.



End of?  Absolutely not 'End of', with respect.  The test for deduction is wholly and exclusively, like any other trade and taxable activity.  If the house was purchased wholly and exclusively for renting out then sure interest is a deduction (wrong to be restricted to 75% but that's life!).

However, if the house was bought for residential use by the owner and they decide to use one of the rooms for renting out then it may fail the test.

(As an aside, if mortgage interest started to be allowed under these scenarios there would be 'havoc', creative schemes of all types, simply with the intention of getting a deduction.   Think we have had enough of these schemes on property.)

Pretty straightforward re the intention at the start - did the owner live in the house that they purchased or was it registered as a buy to let?  The intention is most certainly relevant.


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## Jon Snow (13 Aug 2015)

Gerard123 said:


> End of?  Absolutely not 'End of', with respect.  The test for deduction is wholly and exclusively, like any other trade and taxable activity.  If the house was purchased wholly and exclusively for renting out then sure interest is a deduction (wrong to be restricted to 75% but that's life!).
> 
> However, if the house was bought for residential use by the owner and they decide to use one of the rooms for renting out then it fails the test.
> 
> ...



With respect Gerard, this is nonsense. The original intention at the time of acquiring a loan is irrelevant, otherwise by your logic none of the tens of thousands of landlords letting houses that were originally acquired as their PPR would be able to deduct interest.


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## Gerard123 (14 Aug 2015)

Jon, thanks.  I guess I badly worded what I meant and didn't full explain it so will take another stab. My comment certainly does not mean that a house bought as a PPR and then becomes a let should not have an interest deduction.  Certainly not my intention for that interpretation.  My comment was purely in the context of the Air bnb debate.  I think if you read both my comments they give a better sense of where I am coming from.

If someone buys a house at the start and its is a buy to let that is very clear.
If someone buys a house to live in at the start and subsequently it changes to buy to let then clear also.
In both these cases they are rental properties, subject to tax, all normal deductions for expenses, mortgage interest, etc.  Subject to CGT when sold under normal rules that apply in each case.

For Air bnb the situation is clouded and it certainly is not black and white.  The situation is clouded as it is a combination of owner occupied residential and other party.  The other party could be one of a number of scenarios (e.g. student, long term residential, short term holiday guest, etc). It is not clear how to treat the rental income, hence the current debate.  Dealing with the mortgage interest is even more complicated.

My comment re the intention is that it is one of the many factors that need to be considered, together with other factors, in deciding how to deal with mortgage interest.  Let me give two examples.

1  Jon is 35 and bought a house two years ago.  It was a four bed house and in the financial workings provided to the bank Jon included the fact that he was planning to rent out one room, and he included that rent a room income in the mortgage application.  He insured the house accordingly.  Should Jon get an element of his interest as a deduction?  Well, if you use the wholly and exclusively test then it appears to me that Jon would have a strong argument with the Revenue to get a partial interest deduction.  If the Revenue were to now seek to charge tax on Jons rental income then it appears to me very unfair not to allow an interest deduction in the circumstances (partial deduction only of course).

2  Jon and Mary are in their fifties and have 7 years of their 25 year mortgage left.  They have two children who have now left home.  To supplement their income they rent out a room.  If the Revenue argue that their rental income is taxable then should they get an interest deduction?  I struggle in this case to see how the wholly and exclusively test could be met to argue for an interest deduction.

Yet if there was a plain vanilla rule saying that if Air bnb income is taxable then interest is deductible both above examples would have deductions.  It is a perfectly rationale argument of course to say there should be similar treatment and both should have interest deductions (I am not arguing this point at all).  What I am saying is that under Tax law the wholly and exclusively test must be passed and different situations can lead to different answers.  The specific facts and circumstances, including looking at the history (better choice of word), must be considered.

There is also the issue of CGT to be considered on a sale, but not getting into that here.

All good intentions...............


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## Sophrosyne (14 Aug 2015)

See this from Revenue:

What if a premises is Only Partly Let


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