Interest Only Mortgage on investment property - rental income taxable.

I bought my house in Jan 2000, for 142K punts.
My mortgage outstanding on it was about 900 euro per month.
We have bought a new house but are keeping old house to rent out.
We have moved banks and have taken equity on our investment property and full mortgage payments on the new PPR.
My neighbour did something similar but they said that the tax exemption on the rental income is only related to the original interest amount in my original monthly payments?
Is this correct?
I thought the point of moving to interest only on investment properties was to decrease tax liablility, reduce repayments and hope that the property value increases in the future so you can make a profit if you had to sell.

That is correct. You can only offset the interest on monies used to buy, improve or renovate the investment property (and other expenses - download the Revenue guide IT70 for a full list) against the rental income, not equity extracted to purchase a new main residence.

By switching the original mortgage balance to interest only you maintain the interest payments - on an annuity mortgage the balance, and therefore the offset-able interest is decreasing each month - and reduce your cashflow.

Sarah

www.rea.ie

Moved from Mortgages and Home Buying because it's a property investment query.

SA Ecca

Wait until you find out how much CGT you are liable for after you are 12 months out of your own property ;-)

I too was shocked to find out that I could not offset all of the interest on the interest only mortgage against the rental income. On the advice of Clubman and others, I went to see a tax accountant for professional advice. I feel much better about holding onto my investment now as a result. Obviously each case is unique.

McGinty

McGinty said:

Wait until you find out how much CGT you are liable for after you are 12 months out of your own property ;-)

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No need to wait. If you live in a property for x years then rent it out for y years and then sell it then:

(y-1)/(x+y) x 100

is the percentage of any eventual resale gain that is assessable for CGT.