# Tax etc on rental income



## waxy (16 Aug 2011)

Myself and my wife and kid live in a one bed apartment bought at the top of the market in 2007 for 300k. Worth around half that now. We want to move out and rent a two or three bed place.

We were first time buyers at the time. Mortgage is a tracker and is currently around 950 pm with 280k left on it. Have looked at rents for similar apartments and they are about 850pm. So my rent would be less than my mortgage and with further ECB rate rises that gap is only likely to get bigger. The rent we will pay in the new place is likely to be around 1000pm so a big net loss already before we even start.

If we were to move out and rent it what taxes etc would we have to pay and what benefits would I lose (mortgage interest relief etc)? 
In other words how much would it cost me per year as well as the extra 100 per month difference between the rent I would get and the mortgage. Pay management fee of around 1500 per year as well as life insurance home insurance etc.

I know little or zero about any of this (including what exactly 'tax deductible' means) so a real idiot's guide to the whole thing would be very helpful!

Failing that who would be the best type of person to go to to get a full explanation of all this would entail, costs and otherwise. Either free or fee based.

Thanks for any help!


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## Brown (16 Aug 2011)

If you rent out your apartment at 850 per month, The expenses you will have are:
   Non Principal private residency tax €200 per year
   Private residency tenancy board €70 each time you change the tenants.
   BER energy rating €150 -€200 ( this rating lasts for 10 years)
   Insurance (This is a different type of policy for rental properties)
   Apartment management Fees
   General repairs and upkeep.

The expenses you can claim against income tax are:
    The interest portion only of your mortgage, repairs, upkeep, BER, PRTB,   
    Management fees, Insurance.
The expenses you cannot claim against income tax:
    NPPR Tax, The repayment portion of you mortgage.

Income tax will be due on the balance.

The mortgage may have interest relief already deducted for you principal private residence,  if so your monthly repayments will increase by that amount.


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## vandriver (16 Aug 2011)

Only 75% of the interest is allowed as a deduction .


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## RMCF (16 Aug 2011)

vandriver said:


> Only 75% of the interest is allowed as a deduction .



... and may be reduced in the coming years (if not this Dec's budget).


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## waxy (16 Aug 2011)

Brown said:


> If you rent out your apartment at 850 per month, The expenses you will have are:
> Non Principal private residency tax €200 per year
> Private residency tenancy board €70 each time you change the tenants.
> BER energy rating €150 -€200 ( this rating lasts for 10 years)
> ...



Thanks very much for that.

Sorry for the ignorance but what exactly does 'claim against income tax mean'. Also how do you prove expense on repairs upkeep etc?

Just looking at the figures I've given above could anyone give a ball park figure of how much extra I'd have to pay out. would it be 2k, 5k, 10k genuinely have no idea?

Could anyone recommend a good financial advisor to go to have this fully costed and specifically broken down what it would cost me per year?

Also is there any proposals to deal with people in my situation who are stuck in one beds in massive negative equity and a growing family. Obviously my own fault etc etc and I'm generally not whinging but surely I am different from someone with a second property renting out to earn a bit of income or a pension pot. I'd love to sell my place and go renting elsewhere but simply can't because of negative equity.


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## oldnick (16 Aug 2011)

Waxy - this is not meant to be rude but ...
.. there are several posts in this thread on property investment that will answer many of your questions.
There are other sites such as irishlandlord.com. Also the Revenue.ie have a guide to rental income online

If anything is still unclear then this is a great thread on which to ask. Also, regarding an advisor -an accountant probably - thats not a bad idea, but they cost money so it's best to acquire some free knowledge first before paying for his advice.

However as its raining and I cant garden at the moment, I'll give a very rough quick breakdown...

your new rental home cost 12k - but you are getting 10k rental incomefrom your own property.

After you have paid the costs listed by Brown,including a heavier-than-before insurance you may end up with  7k/8k -and thats assuming tenants are always paying  or dont wreck the place.

You can -_at present_- claim 75 % of the interest that you Pay on the loan. I dont know what interest you pay, but let's say its 6k, so you can claim 4.5K against tax so, really, your taxable income is only 3/4k - you will pax tax of between 1k to 2k depending on your tax bracket.

So, out of the gross rental income you will keep about 5/6k. Not great is it ?

This is very rough and  there is a big chance that the govnt may not allow any interest against tax on rental income.There is a  fear that this may be cancelled or diminished.

And finally - I must dash -it's sunny again...
_you may lose your tracker mortgage ._ It depends on your bank and loan conditions. banks dont like trackers.It costs them money. If you tell them ,or if they find out that you are not living in your owwn property then they stick you with a much higher interest rate.  
A couple of percent extra on your loan could wipe out any so-called rental profit.

You could end up with a total extra cost of 8.000 euros for that extra bedroom.

Now, read the other posts...


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## T McGibney (16 Aug 2011)

oldnick said:


> there is a big chance that the govnt may not allow any interest against tax on rental income.



On the other hand, there is nothing concrete to indicate that this is a possibility.


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## waxy (16 Aug 2011)

oldnick said:


> Waxy - this is not meant to be rude but ...
> .. there are several posts in this thread on property investment that will answer many of your questions.
> There are other sites such as irishlandlord.com. Also the Revenue.ie have a guide to rental income online
> 
> ...



That's a great help oldnick.

Would there be any chance that the govt would bring in some sort of help for people in my situation? There must be loads of us.
We are still being forced to pay huge taxes and other bills even though we are losing money hand over fist and paying out far, far more than we are getting in. I thought tax was meant to be on profit not loss?
If we could sell the property and just pay off the remaining 100k or whatever we still owe the bank that would be at least something, what would be the problem with this that you could see?
Haven't seen any articles in papers about this problem and there must be some people just not declaring for tax purposes. Is there any way the govt are turning a blind eye to this?


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## peteb (16 Aug 2011)

are you having a laugh? A government doesn't turn a blind eye to tax evasion! Thats money out of their pockets!


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## waxy (16 Aug 2011)

peteb said:


> are you having a laugh? A government doesn't turn a blind eye to tax evasion! Thats money out of their pockets!



Possibly because it would cost too much to detect the evasion and they are putting their money into other areas that are costing them more money?
Can't see how they'd crack down on this one to be honest..


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## WaterSprite (16 Aug 2011)

It's definitely a key area on which Revenue is concentrating.  I believe they are checking PRTB registrations (without which you can't claim the 75% mortgage interest against tax) and checking tenants' applications for rental relief against landlords' declarations of tax.

I agree that there are probably lots of people renting out their properties without declaring the income, but I think, apart from the moral and legal problems, it's a high-risk course of action.


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## waxy (16 Aug 2011)

WaterSprite said:


> It's definitely a key area on which Revenue is concentrating.  I believe they are checking PRTB registrations (without which you can't claim the 75% mortgage interest against tax) and checking tenants' applications for rental relief against landlords' declarations of tax.
> 
> I agree that there are probably lots of people renting out their properties without declaring the income, but I think, apart from the moral and legal problems, it's a high-risk course of action.



Ah yeah doubt I could persuade the wife to take the risk to be honest! Damn women and their moral compass...
is rent relief not gone?


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## oldnick (16 Aug 2011)

mcgibney - the reason I wrote  with some emphasis that I fear that the govnt will abolish or diminish tax relief on interest paid is because :-

1) the precedent has been established  -already 25% has been cut. The govnt is also slowly ceasing tax relief on home loans. It seems a natural progression to abolish it on rental income.
2) Landlords are wicked evil money grasping villains in the eyes of many - abolishing or diminishing the relief would be less unpopular than many other possible steps.
3) Above all, I wanted Waxy to be aware that whatever is the rental income situation today could be - probably will be - much tougher in a year or so.

I'm probably too pessimistic but everything about rental income in the last few years has made me so, thus I urge Waxy to be very cautious about renting another place and letting his own.


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## waxy (16 Aug 2011)

oldnick said:


> mcgibney - the reason I wrote  with some emphasis that I fear that the govnt will abolish or diminish tax relief on interest paid is because :-
> 
> 1) the precedent has been established  -already 25% has been cut. The govnt is also slowly ceasing tax relief on home loans. It seems a natural progression to abolish it on rental income.
> 2) Landlords are wicked evil money grasping villains in the eyes of many - abolishing or diminishing the relief would be less unpopular than many other possible steps.
> ...



Unfortunately this particular 'little guy' is going to be collateral damage in a move like that.
Is it true that rent relief has been abolished for any new place I would move into too?


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## RMCF (17 Aug 2011)

I rent out a 2nd house, and to be honest, if I was able to get rid fo it I would. 

This is my 1st year as a LL, but I get the feeling that its gonna get a lot tougher in years to come.


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## elcato (17 Aug 2011)

I have made submissions to my local TD's to have something done about this which was discussed here. While one TD did ask about it in Dail questions as usual change is something that seems to take ages in Irish politics. The reply was that they would consider it along with all other measures for the next budget.


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## oldnick (17 Aug 2011)

Waxy -you say your present one-bedroom apt is worth ca. 150k .(must be in good area or quite large -hope you haven't overestimated). 
Are there bigger apts or  maybe a terraced house, even a mile or so away, for a similar price?

If yes, then perhaps you may ask the bank  can you sell your apt because of absolute family need and with the same loan buy the bigger property.

The bank is owed  280k .the bank will still be owed 280k but you will have a much bigger property for you and your child and hopefully another one.

I am making this sound simnple. It is not. There are some threads on this. Elcato is on the right track . Bank will probably say no. If they say yes  they'll probably ask you to take a variable. And there'll be costs. But approach them anyway.
It's far better than taking on an extra property.

If the bank says no  -you'll have to stay in a unsuitable property for most of your life until you pay every penny of the outstanding 280.ooo euros, even though you'll never ever be able to raise a family there - then tell them to xxxxxx and throw back the keys.

Other posters will attack me for the last sentence.  But if a couple suggest a scheme that means  they can raise children in reasonable accommodation  and the banks will get their money and that bank says no, then the bank is to blame if you return the keys.


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## vandriver (17 Aug 2011)

In reply to your query,yes  rent tax relief has been abolished for new leases.


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## mandelbrot (17 Aug 2011)

waxy said:


> Possibly because it would cost too much to detect the evasion and they are putting their money into other areas that are costing them more money?
> Can't see how they'd crack down on this one to be honest..


 
The easiest way they will catch you is through the NPPR.


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## mandelbrot (17 Aug 2011)

vandriver said:


> In reply to your query,yes rent tax relief has been abolished for new leases.


 
AFAIK its been abolished for new first time tenants, not for new leases.

So if you were already renting and eligible for the rent tax credit prior to the last budget, you are still entitled to the credit if you move house and enter a new lease.


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## T McGibney (17 Aug 2011)

mandelbrot said:


> AFAIK its been abolished for new first time tenants, not for new leases.
> 
> So if you were already renting and eligible for the rent tax credit prior to the last budget, you are still entitled to the credit if you move house and enter a new lease.




If true (I assume it is as  is generally on the ball  ) this is outrageous discrimination.


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## waxy (17 Aug 2011)

mandelbrot said:


> AFAIK its been abolished for new first time tenants, not for new leases.
> 
> So if you were already renting and eligible for the rent tax credit prior to the last budget, you are still entitled to the credit if you move house and enter a new lease.



Are you eligible if you were renting at any stage prior to the last budget or do you have to have been renting at the last budget?

Seems like a nightmare to police..


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## oldnick (17 Aug 2011)

If you were not renting actually at 7 december 2010 you are not eligible for rent relief.
How Revenue monitor this I've no idea.

The abolishment of rent relief will be the least of your problems if you go ahead with this two property idea.


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## waxy (18 Aug 2011)

oldnick said:


> If you were not renting actually at 7 december 2010 you are not eligible for rent relief.
> How Revenue monitor this I've no idea.
> 
> The abolishment of rent relief will be the least of your problems if you go ahead with this two property idea.



I appreciate exactly what you're saying and you've been very helpful but what do you expect me to do? Continue raising my kid in a second floor one bed apartment and tell my wife we can't have any more kids?
There has to be some solution to this as that seems very unfair from where I'm standing..


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## mandelbrot (18 Aug 2011)

waxy said:


> Seems like a nightmare to police..



Not really, at least not any more so than the rest of the tax system - people who had the credit already will continue to have it until / unless they notify Revenue they're no longer entitled to it (no longer renting)... this is the point of a self assessed tax system.

No new people will be allowed to claim the credit, without providing proof (PRTB registered tenancy or a lease agreement dated prior to 7/12/10), and the credit will be phased out completely over the next few years anyway.

It is then policed, in the same way as claims for other tax credits, by running compliance programmes, writing to people to confirm their entitlement.


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## oldnick (18 Aug 2011)

Waxy you are quite right. It is a crazy situation. i told you what to do. Approach the lender and say you wish to transfer the loan to a bigger property.

If the bank refuses then they are denying you the basic human right to have a family as it is is impossible to properly raise a family in a one-bed apt.

If you find a property with an extra bedroom near your present place and it within,say, 30k of what your prewsnt place is owerth , then that makes ssense.
You may even find a decent two-bedroom for  the same price ,maybe a but further away.

there's a lot of good two-bed apts for 150k, which you value your present apt at.


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## Bronte (26 Aug 2011)

oldnick said:


> .
> 
> If the bank refuses then they are denying you the basic human right to have a family as it is is impossible to properly raise a family in a one-bed apt.
> 
> .


 
And what good is that to the OP?  He can always leave the apartment, go rent somewhere and see what the bank throws at him and he can have as many kids as he wants then in a house big enough for a family paid for by the government.

In relation to mortgage interest relief, I don't think they will abolish it, the fear of that has driven many potential investors out of the market and for those of you who don't like landlords, that's not necessarily a good thing.


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## oldnick (26 Aug 2011)

Bronte- your rather belated post is pretty well what I was trying to get across to OP. that is, if the bank acts unreasonably and does not help him to transfer mortgage to a larger place as I had suggested he try (whether at same or slightly higher price) then he is under no moral obligation to the bank.
 And he should not just " leave his apt and go rent somewhere else and see what the bank throws at him " without at first negotiating with the bank.

Rent and mortgage interest relief are both being phased out.

Anyway, would be good to hear how OP got on since his last post.


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## mickeymouse (11 Oct 2011)

If it is any consolation we are in the exact same situation. Living in a 2-bed apartment. We simply have to move but unfortunately are carrying a bit more debt than Waxy.... In 2006 we ‘foolishly’ got a 100% mortgage for 400k. Currently owe 375k. Apartment now worth 220k.

Am pregnant with 3rd child and we cannot manage living in our property for much longer.

By the time we do everything above board and declare all income etc etc, like we should, we will be contributing about 8k extra a year to the mortgage. 
That is excluding renting a new property at €1500 per month roughly in the same area as we are so as to access maintain schools etc.
Needless to say we are at our wits end!
Feel like we are living like those in the tenements did years ago!!
IS there anything we can do to improved things?
Desparate
MM


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## T McGibney (11 Oct 2011)

oldnick said:


> Rent and mortgage interest relief are both being phased out.



For investors? There is no indication that this is the case. The Minister who introduced the previous 75% restriction is now deceased. The Opposition Spokesperson who campaigned for that restriction to be introduced had her wings clipped in the meantime and now has no responsibility for tax policy in the new government.


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## oldnick (11 Oct 2011)

Perhaps, TMcGibney, a response to mickeymouse would have been more helpful.

You made the same point in pst 7 and I replied in 13.
I do hope you are right in your (evidently firm) belief that the govnt will not gradually reduce interest relief. However, if they don't do that they will do something else and I believe it prudent to advise inexperienced investors of such possibilities.

mickeymouse - as I asked waxy -is there a possibility of purchasing a larger property even if a little further out, with one more room, for a similar price to that which you will get for your present property?

There has been some movement on the negative equity mortgage front (go through recent threads for more info). It depends on your lender. Its difficult to advsie without knowing incomes, any savings, etc but the last thing i would do is to try to become landlords of your property and rent another for all the reasons in previous posts on this thread.

Maybe I am being more pessimistic than one or two posters, but i do feel that being a landlord will be even more difficult than ever in the future. You must get on to your lender /mortgage brokers  and the various agencies and try to transfer the mortgage.


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## T McGibney (12 Oct 2011)

oldnick said:


> I do hope you are right in your (evidently firm) belief that the govnt will not gradually reduce interest relief. However, if they don't do that they will do something else and I believe it prudent to advise inexperienced investors of such possibilities.


One person's prudence is another person's scaremongering. And vice versa.


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