Tax on rental income (and other advice for 1st time landlord)

jack presley

This is the first time I've rented a house out so I was wondering how much of the income I should put away to pay the tax man at the end of the year.

I'll be getting €650 a month in rent which works out at €7,800 a year. I know I can write off a bit of it (any advice on what you can/can't do here would be appreciated also) but I don't want to get hit with a huge bill for €3k or something in January so what should I be saving each month?

Thanks.

ricman

you are taxed on profit,income minus mortgage, insurance,repairs,expenses ,
eg say loan plus expenses is 6k, rental income is 7k, you pay tax on profit, taxed on 1k at 21 per cent ,depending on your tax bracket.I think you are supposed to pay prtb fee ,and council tax, council tax is 200 euro approx.
i know landlords who pay 400 tax per year cos their profit after mortage is small.
look on revenue.ie for more detailed info,i think you can claim tax credit for interest paid on mortgage,if you have a mortgage on the rental property.

D3PO

ricman wrote: »

you are taxed on profit,income minus mortgage, insurance,repairs,expenses ,
eg say loan plus expenses is 6k, rental income is 7k, you pay tax on profit, taxed on 1k at 21 per cent ,depending on your tax bracket.I think you are supposed to pay prtb fee ,and council tax, council tax is 200 euro approx.
i know landlords who pay 400 tax per year cos their profit after mortage is small.
look on revenue.ie for more detailed info,i think you can claim tax credit for interest paid on mortgage,if you have a mortgage on the rental property.

WRONG WRONG WRONG WRONG WRONG OP Ignore this

D3PO

Firstly OP the last post by Ricman is a clear reason why you should never take what is posted on a webforum and apply it to your tax affairs.

You cant get an holistic X,Y,Z answer here but a few things to advise on that will give you some rough ideas.


Your returns (dont think they are due in Janurary by the way) on the rental income works on the basis of

Rental income - deductable expenses = taxable income
Deductable expense include

• accountants fees if your hire one (if you dont know how to file your return this is advisable)
• 75% of mortgage interest on the property
• 12.5% capital allowance on your fixture and fittings. essentially your depreciating your furniture over 8 years
• advertising costs
• EA fees if you pay them

also note if your a firet time landlord

you must register the tennancy with the PRTB (if you dont you cannot offset mortgage interest on your tax return)

you are lible for CGT if you sell and make a profit on the property of 20%

if you bought on a residential mortgage your suppsed to inform your bank and will lose your TRS and may be put onto an investmenet mortgage

jack presley

D3PO wrote: »

Firstly OP the last post by Ricman is a clear reason why you should never take what is posted on a webforum and apply it to your tax affairs.

You cant get an holistic X,Y,Z answer here but a few things to advise on that will give you some rough ideas.


Your returns (dont think they are due in Janurary by the way) on the rental income works on the basis of

Rental income - deductable expenses = taxable income
Deductable expense include

• accountants fees if your hire one (if you dont know how to file your return this is advisable)
• 75% of mortgage interest on the property
• 12.5% capital allowance on your fixture and fittings. essentially your depreciating your furniture over 8 years
• advertising costs
• EA fees if you pay them

also note if your a firet time landlord

you must register the tennancy with the PRTB (if you dont you cannot offset mortgage interest on your tax return)

you are lible for CGT if you sell and make a profit on the property of 20%

if you bought on a residential mortgage your suppsed to inform your bank and will lose your TRS and may be put onto an investmenet mortgage

Thanks for that. Just to clarify the situation, basically the misses is moving in and we're renting out her place. We've paid the €200 NPPR and we've registered with the PRTB so we're all above board there.

I think you're right, an accountant will be the way to go which brings up another question. How much should I expect to pay for getting all of this sorted?

jack presley

jack presley wrote: »

...........
I think you're right, an accountant will be the way to go which brings up another question. How much should I expect to pay for getting all of this sorted?

I couldn't imagine them being able to justify any more than €250 to look after it to be honest. Once you have the PRTV registration and receipt, NPPR receipt, mortgage interest cert and details of your own income for that tax year along with your tax credit details there isn't much actual work for them to do.

Ring 4 or 5 accountants local to you for a rough estimate.

odds_on

jack presley wrote: »

Thanks for that. Just to clarify the situation, basically the misses is moving in and we're renting out her place. We've paid the €200 NPPR and we've registered with the PRTB so we're all above board there.

I think you're right, an accountant will be the way to go which brings up another question. How much should I expect to pay for getting all of this sorted?

errr, you can only register with the PRTB once you have a tenancy in place. As I understand from your post, you haven't rented out yet (perhaps I've misunderstood?)

ricman

I know many landlords,they pay tax on their profits,profits = rental income minus all allowable tax credits ,eg items of expenditure you can claim tax allowances for,eg insurance, a certain percentage of interest paid on a mortgage paid for a rental property,and other expenses you may have in regard to renting or maintaining the property.Of course you will need reciepts and statements from the bank showing interest paid on the loan in order to claim these tax credits.
it might be simpler to get an accountant at least for the first year,say you buy a fridge for 300 ,i think you are only allowed to claim x amount per year on furniture,carpets,electrical items etc,eg 12.5 per cent of 300 for 8 years.Its very important to hold onto all receipts.

jack presley

odds_on wrote: »

errr, you can only register with the PRTB once you have a tenancy in place. As I understand from your post, you haven't rented out yet (perhaps I've misunderstood?)

sorry, the tenant moved in this week so I registered on Monday.

The_Conductor

ricman wrote: »

I know many landlords,they pay tax on their profits,profits = rental income minus all allowable tax credits ,eg items of expenditure you can claim tax allowances for,eg insurance, a certain percentage of interest paid on a mortgage paid for a rental property,and other expenses you may have in regard to renting or maintaining the property.Of course you will need reciepts and statements from the bank showing interest paid on the loan in order to claim these tax credits.
it might be simpler to get an accountant at least for the first year,say you buy a fridge for 300 ,i think you are only allowed to claim x amount per year on furniture,carpets,electrical items etc,eg 12.5 per cent of 300 for 8 years.Its very important to hold onto all receipts.

I think you're playing a bit fast and loose with the term 'profit'.......

Taxable income, when you are letting out property, is the gross income, less any allowable deductions (these are *not* credits).

The rate of tax due to be paid depends on all income earned by an individual (or a couple in the case of a joint tax return)- aka- if you are a PAYE earner, your PAYE income is part of your gross income for determining what the marginal rate of tax on your rental income might be.

In the case of letting of a previous PPR- the pre-existing furniture, fixtures and fittings may be depreciated over a 5 year period, and for any new purchases over an 8 year period. You are right of course- keep receipts if at all possible- its not the end of the world if you don't have receipts, but it becomes very messy when you're audited (and if you're declaring rental income or any cash income- you are 4 to 5 times more likely to be audited).

My issue with the use of the term 'profit'- is its irrelevant what your rental income is in the current market- with falling capital prices, you are always going to have a net loss on a valuation basis (in a business context thankfully these are only done once every 20 years, but there are accountancy moves on foot to value all business on an annual basis- though this has been in progress since 1998).

dannycashel

might in the same situation as the above guy and im a bit confused

the 75% allowance against mortgage interest. Is this my monthly mortgage or just the proportion that is paying of the interest so in the early years it probably makes up 80/90% of my monthly payment

and following on from this would i be right in thinking that as the years roll on the interest proportion of my repayments fall to very low levels as most of the mortgage is directed towards the principal.

Therefore as a long term strategy you could expect higher and higher tax liabilites on the income associated with renting out your property

troops

dannycashel wrote: »

might in the same situation as the above guy and im a bit confused

the 75% allowance against mortgage interest. Is this my monthly mortgage or just the proportion that is paying of the interest so in the early years it probably makes up 80/90% of my monthly payment

and following on from this would i be right in thinking that as the years roll on the interest proportion of my repayments fall to very low levels as most of the mortgage is directed towards the principal.

Therefore as a long term strategy you could expect higher and higher tax liabilites on the income associated with renting out your property

just the interest portion (net of trs). You should have received a statement of interest paid on your mortgage in 2010 from your bank in January or so.
long term...yes....less interest paid => less to write off against rental income. Even the 75% could be reduced in upcoming budgets so more bad news!!!

The_Conductor

troops wrote: »

just the interest portion (net of trs). You should have received a statement of interest paid on your mortgage in 2010 from your bank in January or so.
long term...yes....less interest paid => less to write off against rental income. Even the 75% could be reduced in upcoming budgets so more bad news!!!

We've undertaken to eliminate it totally by 2017........ We've also undertaken to eliminate Mortgage relief for owner occupiers, regardless of status, by 2019. The intention is to remove all distortionary supports- the rationale being that these were a contributory factor in the bubble......

dannycashel

So i wonder based on this how any landlord nearing the end of his mortgage even breaks even

Surely the last few years you are predominatly paying off the principal. Therefore a severly reduced ability to lower your tax liability.

It pretty conceivable that all of the rental income would be liable for tax at the higher rate 41%. Cant see this being a long term solution to my neg. equity hell

troops

dannycashel wrote: »

So i wonder based on this how any landlord nearing the end of his mortgage even breaks even

Surely the last few years you are predominatly paying off the principal. Therefore a severly reduced ability to lower your tax liability.

It pretty conceivable that all of the rental income would be liable for tax at the higher rate 41%. Cant see this being a long term solution to my neg. equity hell

if u bought in the last decade it's unlikely rent received will even cover the mortgage payment and that's before u go into paying revenue, nppr, prtb, landlord insurance etc...etc

troops

The_Conductor wrote: »

In the case of letting of a previous PPR- the pre-existing furniture, fixtures and fittings may be depreciated over a 5 year period, and for any new purchases over an 8 year period.

apologies for dragging up an old thread but does anyone know if this is correct that you can depreciate existing furniture for 5 years after you rent out your house?

Steviemoyne

troops wrote: »

apologies for dragging up an old thread but does anyone know if this is correct that you can depreciate existing furniture for 5 years after you rent out your house?

Here's what I found on a quick search:

Wear and Tear - Depreciation of furniture and fittings
With effect from 4 December 2002 the allowance is 12.5% per year over 8 years.
For the period between 1 December 2001 and 3 December 2002 the allowance was 20% per year over 5 years. Transitional provisions apply allowing the rate of 20% per year over 5 years if the item was acquired under a written contract before 4 December 2002 and the expenditure was incurred before 31 January 2003.
Prior to 1 January 2001 the allowance was 15% per year for the first 6 years and 10% in the 7th year

From here on the revenue.ie website.

3DataModem

dannycashel wrote: »

So i wonder based on this how any landlord nearing the end of his mortgage even breaks even

Surely the last few years you are predominatly paying off the principal. Therefore a severly reduced ability to lower your tax liability.

It pretty conceivable that all of the rental income would be liable for tax at the higher rate 41%. Cant see this being a long term solution to my neg. equity hell

Yes but the rent has increased with inflation, but the mortgage hasn't.

So in the last few years it's mega profitable.

Steviemoyne

3DataModem wrote: »

Yes but the rent has increased with inflation, but the mortgage hasn't.

So in the last few years it's mega profitable.

You're quoting a post from 2011 by the way.

The_Conductor

3DataModem wrote: »

Yes but the rent has increased with inflation, but the mortgage hasn't.

So in the last few years it's mega profitable.

And the previous few years- a significant majority of rentals were being let at considerably below mortgage repayments- and were significantly loss making.

Rent is determined by supply and demand- not the rate of inflation. At the moment, supply is in constraint. It hasn't always been this way......

shawnee

Thought there was a system where one could rent out a room in a house you were residing in and that it was tax free ?

Eldarion

shawnee wrote: »

Thought there was a system where one could rent out a room in a house you were residing in and that it was tax free ?

There is. It's referred to as "rent-a-room relief" and you can receive rent tax free up to €10k per annum. It doesn't have much bearing on this thread at all though as it's dependent on the Landlord also occupying the same property.

As for the question regarding Landlords 'breaking even' towards the end of their mortgages. You realise that Landlords gain equity when they're making payments against the principle right?