Renting out my Apt and renting myself

E

ermo2008

Guest
Hi,
I own an a 2 bed Apt and am unhappy with the service levels ect and many other things in this development. Thus i wish to rent out this Apt. I am sole owner of this Apt and am solely paying the mortgage. I did not get stamp duty exemption when i first bought 5 years ago as i was not the first owner of the Apt.
What are my obligations/worries from an Income tax point of view ? . Can i avoid paying tax on the rental income as i will be paying rent too ?
I would be very grateful for any advice on this question and any other advice that may be relevant.
Thanks in advance,
 
It doesn't really make much financial sense to rent out your apartment and rent one yourself.

You will pay income tax on the rent you receive less any interest you pay.

You will get very little tax relief on the rent you pay.

You will pay CGT on the eventual sale of your property.

It probably doesn't make much sense from a practical point of view either. You may have problems with your tenants, especially as they will face all the problems you face now. You may have problems with your landlord.

The solution is to sell your apartment and buy another. It might take some time to do this, but it's better than making life even more complicated than it is at present.

Brendan
 
Brendan, is the OP's suggestion as bad as you make it out to be? It might be worthwhile to do as the original poster suggests for a year or two to see how he feels about it instead of paying fees to sell his property and all associated fees/stamp duty etc to buy a new property.

If the current flat/falling market lasted for a couple of years would there be any CGT to pay? I thought it only applied from when you rented the property out not when you purchased it? Your comment on paying income tax on rent would only apply if the interest on mortgage is less than the rent he would get,this may not be the case?

I've thought of doing what the OP suggested and the only thing holding us back is the inconvenience of short, 1 year leases which aren't great if you have family etc.
 
If you were a first time buyer, you would have had some stamp duty reduction and this will have to be repaid if you now let the property.
 
It might be worthwhile to do as the original poster suggests for a year or two to see how he feels about it
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This only makes sense if he feels that the existing problems will be solved and he will want to move back in again in a few years.

If he wants to move out of the apartment and he thinks that prices will fall further, then he should sell now and rent until he thinks that the right time to buy has arrived.

The CGT treatment is very dangerous in a falling market.

House bought 1/1/2000: €200k
Value 1/1/2008(date rented): €500k
Value 1/1/2010(date sold): €400k

Capital Gain since purchased: €200k
Total ownership: 9 years
owned as investment: 2 years
Amount subject to CGT: 2/9ths of 200K

So although the property falls in value by €100k, he will pay cgt as if it has risen by €44k.

Brendan
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Thanks All,
This Apt is my PPr so CGT is not a concern. I do think the mrkt will fall for the foreseeable future (until 2011).I see losses of 10% a year which is a loss of 30%+.If i get out now i will lose (lst yr valued at 365 now i'm guessing 325) from top of the mrkt prices.However my cash assets will depreciate by 3% less net bank interest ( indeed if i leave the cash in for a year with no out clause i will probably gain ) , whilst my property asset is set to lose 30%.
I go back in to the market in 2011 (ono) with prices in my chosen location (certainly not where i live at the moment) having softened by 30-35%.
Yes i lose out on rent payments of 13k a year i.e 39k but still significantly less than 141K.
A no brainer.
 
You are assuming that your predictions on house prices in 2011 will be accruate (they might be, but could just as easily be considerably out). Also, you will need to factor in that you will have to pay rent for this timeframe and pay stamp duty when you do eventually repurchase.
 
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