query about paying tax on rental income

S

speedy

Registered User
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Your tax return will be something like the following:
Rental income………….€12,000

Expenses
Mortgage interest………€ 8,000
Decorating & repairs…..€ 1,000
Insurance……………….€ 500

Taxable profit…………..€ 2,500

Tax at 42%……………..€ 1,050
PRSI at 5%……………..€ 125

i just pasted this from the FAQ and my question is this:
as the years go by and the mortgage interest decreases and you are paying more off your capital, does that in turn mean that you will end up paying more tax?

sorry if that's a stupid question, just trying to get my head around this stuff. thanks.i really hope i make sense..............
 
Not a stupid question at all. The issue that you have identified is one reason why it may make sense for investors to have an interest only mortgage on their investment property:

Interest only mortgage
 
An add on to the above.

Is Stamp deductable on renatl income also?

It is deductable when calculating CGT so is it here?

cheers
 
Howitzer said:
No and no. Stamp isn't deductable when calculating CGT.
Click to expand...
According to my tax consultant and from :

"In calculating the amount of tax payable, deductions are allowable for incidental costs of acquisition, such as solicitor’s fees, stamp duty etc. and incidental costs of disposal, such as solicitor’s / auctioneer’s fees etc. In addition, where an asset was acquired before 2003, inflation relief may be available, effectively adjusting the cost in line with a published inflation factor."

 
A question on something around this issue.

If you are receiving rent on a property and have just realised that you are liable for stamp duty - does paying the stamp duty affect (in a positive way) the amount of income tax to be paid on the rent as intimiated by delgirl's post above, or is that solely when calculating CGT?
 
Stamp duty is not an allowable expense against rental income however it is an allowable expenditure when calculating the gain for CGT.

Expenses are allowable againt either the rental income OR the capital gain but not both. The revenue do publish a list of allowable expenses but to be sure you would need to contact a tax advisor
 
My understanding of the posts above are that a higher rate tax payer will have to pay 42% tax and 5% PRSI on profits. This means that if the mortgage rate is 5%, it is only really costing the investor 2.65% because he/she is saving on tax/PRSI. Therefore, the investor is better with an interest only mortgage and putting the additional money that a repayment mortgage would cost into, for example, a low cost tracker such as Quinn Life's Freeway funds if he/she thinks that that fund will increase in value by more than 2.65% per annum.

Is this the correct way to look at it?
 

You don't pay PRSI on rental profits (if you are PAYE anyway) but you are suppose to pay 2% Health levy on rental profits.
 
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