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Interest on borrowings on "investment" property tax deductible ?

  • 23-09-2009 9:47am
    #1
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭


    I posted this question first in the wrong forum so apologies for that.

    A friend has asked me to clarify the following. He has three houses ...all have mortgages. None are section 23 / 27 / 50.
    One is let to a tenant One is empty and is in a part of the country where there are no tenants. One is empty but ( until the rental market improves anyway ) used as a store for some materials for the owners business.
    My question is...say the interest payments to the bank are 10 k a year on each...are these all deductible from the gross profit on the owners main business / income ?
    Thanks in advance for any replies.


Comments

  • #2
    Victor
    Registered Users, Registered Users 2 Posts: 78,494 ✭✭✭✭Victor


    It should be tax deductible, but there are some restrictions.

    Only the interest part can be written off, not the whole repayment, but there should be capital allowances.


  • #3
    namenotavailablE
    Registered Users, Registered Users 2 Posts: 59,645 ✭✭✭✭namenotavailablE


    I don't think the previous advice is entirely correct?!

    I'd have thought that the interest payments would only be deductible against the rental income rather than against trading/other income. Basically, the interest payments refer to a 'distinct' income source (rental) as opposed to a trading income source. You might be able to reasonably make the point that one property is a 'warehouse/ storage' facility if the loan on same is part of the loan of the main trade but the let & vacant properties couldn't legitimately be tied into the main trade. Consequently, at most, the interest payments on the property used for storage could be set against the income of the trade but the other interest payments could not.

    Your friend should seek clarification from his/her accountant.

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  • #4
    Victor
    Registered Users, Registered Users 2 Posts: 78,494 ✭✭✭✭Victor


    namenotavailabl wrote: »
    Your friend should seek clarification from his/her accountant.
    Indeed and you make a fair point. The Revenue may require the losses on the rental properties to be treated separately, but retained losses can be used against future profits.


  • #5
    blast05
    Closed Accounts Posts: 256 ✭✭blast05


    Could the retained losses by used to offset capital gains tax ?
    Am making about a 1K loss per year on a rented property and in work i receive free shares every 3 months to match double the number of shares that were bought from contributions 3 years earlier so would be nice to be able to 'use' the retained losses....


  • #6
    Night_Prowler
    Registered Users, Registered Users 2 Posts: 61 ✭✭Night_Prowler


    Rental losses cannot be offset against other types of income. This is principal known as "Ringfencing" where rental losses are ringfenced against rental profits only.

    The mortgage interest on a rental property is an allowable deduction against rental income only and where this may create a loss situation, then the loss is carried forward against future rental profits as outlined above.

    I strongly advise that you consult your accountant in order to receive tailored advice


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  • #7
    dbran
    Registered Users, Registered Users 2 Posts: 2,094 ✭✭✭dbran


    Hi

    It is a mistake to rely solely on advice received from boards.ie and you should really seek professional advise in this and on all your tax matters.

    I would also add that it depends on what the borrowings were used for and not on what the loans are secured.

    For example if the loans have been used to fund your main business and not the purchase of the property itself then that part of the loan would not be allowed against the rental income but would be allowed against the main business profits.


    Kind Regards


    Dbran


  • #8
    jimmmy
    Closed Accounts Posts: 2,539 ✭✭✭jimmmy


    Night_Prowler wrote: »

    The mortgage interest on a rental property is an allowable deduction against rental income only and where this may create a loss situation, then the loss is carried forward against future rental profits as outlined above.

    Thanks for your reply....but suppose a situation exists where the owner of the property uses it as a store for items for his business, surely then the mortgage interest is a tax deductible expense ? The same as if he was paying interest on his loan on his main business premises ?


  • #9
    Night_Prowler
    Registered Users, Registered Users 2 Posts: 61 ✭✭Night_Prowler


    Well Jimmy im going to assume that you are a sole trader, in which case a proportion of the interest can be off set gainst your trading income but not all. If you own a company, im pretty sure that the property would need to be an asset of the business, but im not a tax advisor so as Dbran said, dont be relying on boards.ie and seek professional guidance.


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